Thailand Holds Interest Rate on Signs of Recovery After Coup

Thailand kept its key interest rate unchanged for a second straight meeting as the economy showed signs of a recovery after a military coup ended months of political unrest.

The Bank of Thailand held its one-day bond repurchase rate at 2 percent, with monetary policy committee members voting unanimously in favor of the decision, it said in Bangkok today. Nineteen of 22 economists in a Bloomberg News survey predicted the move, with three expecting a quarter percentage point cut.

The monetary authority today cut its forecast for gross domestic product growth this year even after consumer confidence rose in May for the first time in 14 months following a military coup on May 22 that ended months of protests. The junta has made payments due to more than 800,000 rice farmers, cut diesel prices, and sped up budget spending in a bid to boost expansion after GDP contracted in the first quarter.

“With the political situation stabilizing, and a resumption of normal public-policy functions within the government, it’s probably the right approach to not cut rates dramatically,” said Rahul Bajoria, a Singapore-based economist at Barclays Plc. “Growth is weak right now, but it should improve in the second half.”

The baht was little changed at 32.50 against the U.S. dollar as of 3:36 p.m. local time. It has strengthened about 1 percent in the past month, the best performer in Asia among 11 currencies tracked by Bloomberg. The benchmark SET Index (SET) slipped 1.1 percent.

Risks Remain

The central bank today lowered its GDP growth forecast for this year to 1.5 percent from an earlier prediction of 2.7 percent. It raised its estimate for next year to more than 5 percent from 4.8 percent, and said public and private spending will drive expansion, even as risks remain from a “slow recovery” in exports and tourism.

The economy may contract 0.5 percent in the first half of the year, and expand 3.4 percent to 3.5 percent in the second half, the monetary authority said.

“We expect a quick economic recovery in the second half because of the easing political situation and a resumption of functioning public policy management,” Assistant Governor Paiboon Kittisrikangwan told reporters today. “Fiscal policy should play a greater role in supporting the economy while monetary policy remains accommodative.”

Since taking over, Army Chief Prayuth Chan-Ocha has handed almost 100 billion baht to about 900,000 rice and rubber growers and pledged to resume spending on infrastructure projects that had stalled since the dissolution of parliament in December. The junta lifted an overnight curfew in Bangkok last week, after earlier easing restrictions in the main tourist areas.

The economy contracted 0.6 percent in the first three months from a year earlier. Inflation (THCPIYOY) quickened to the fastest in more than a year in May.

Household debt rose 11.4 percent to 9.79 trillion baht ($301 billion) as of end-2013 from the previous year, central bank data showed. That is about 82 percent of GDP, according to Bloomberg’s calculations, among the highest in the region.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Rina Chandran, Tony Jordan

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.