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Thailand Holds Rate a Third Time as Risks to Growth Increase

Thailand’s central bank kept its key interest rate unchanged for a third straight meeting amid rising risks from the European debt crisis and slowing growth in China.

The Bank of Thailand held its benchmark one-day bond repurchase rate at 3 percent, it said in Bangkok today, a decision predicted by all 18 economists in a Bloomberg News survey. The monetary authority cut a combined 50 basis points in November and January to spur growth after last year’s floods.

Policy makers across the globe are grappling with the challenges posed by Europe and slowing expansion, with China, Brazil and Australia opting for rate cuts in recent weeks. Thai exports unexpectedly declined in April while inflation is still at a “manageable level,” the central bank said last month, adding on May 30 that there is still room for monetary easing.

“The Thai economy is not that weak as to require an immediate rate cut,” said Satoshi Ushijima, the Bangkok-based vice president of the treasury division at Mizuho Corporate Bank Ltd. “A cut is an option for them in the future if the situation deteriorates, and as inflation is not a major issue now.”

The Thai baht rose 0.3 percent to 31.58 per dollar as of 2:47 p.m. in Bangkok. The one-year onshore interest-rate swap, the fixed cost needed to receive a floating payment, declined one basis point, or 0.01 percentage point, to 2.72 percent.

Southeast Asia’s second-largest economy unexpectedly expanded in the first quarter as factories, including Honda Motor Co., resumed production and local demand revived after the nation’s worst floods in almost 70 years. Manufacturing output rose for the first time in eight months in April.

’Very Accommodative’

“There is no need for policy tightening,” Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said in a news conference today. “Still, we need to save our bullet to use when it is necessary. The current rate at 3 percent is considered as very accommodative and appropriate for economic recovery.”

The central bank will remain vigilant and stand ready to take appropriate policy action if needed, he said. Inflation should stay within target, he said, adding that “should the euro zone crisis intensify, slower export growth could act as a drag on the economic recovery.”

Inflation quickened in May to 2.53 percent on rising food and wage costs. Still, the Commerce Ministry said on June 1 price gains are under control and should be within its forecast range of between 3.3 percent and 3.8 percent this year.

Sri Lanka earlier today held interest rates for a second meeting. The Thai central bank on May 11 raised its growth forecast for 2012 to 6 percent from 5.7 percent earlier. Still, consumer confidence fell for the first time in six months last month, and Governor Prasarn Trairatvorakul has warned that rising political tensions will be “negative” for the economy.

Thousands of protesters gathered in front of the parliament this month to object to a draft bill which may pave the way for an amnesty for ousted Prime Minister Thaksin Shinawatra. The parliament this week delayed a vote on changing the constitution and considering bills granting pardon for political offenses.

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