Thai Growth Missing Estimates Raises Pressure for Rate Cut

Thailand’s government lowered its full-year growth forecast after the economy expanded less than analysts estimated last quarter, boosting the case for the central bank to cut interest rates.

Gross domestic product increased 5.3 percent in the three months through March from a year earlier, after expanding a revised 19.1 percent in the previous quarter, the National Economic and Social Development Board said in Bangkok today. The median of 13 estimates in a Bloomberg News survey was 6 percent.

The growth slowdown may give the Bank of Thailand scope to join a global wave of monetary easing, after resisting pressure from the government in recent months to lower borrowing costs and curb inflows that last month drove the baht to a 16-year high. Finance Minister Kittiratt Na-Ranong, who has led calls for lower rates, has said the central bank must cut by more than a quarter of a percentage point or implement capital controls.

“The recovery in external demand that will be positive for Thai exports is not happening,” and weaker growth justifies an interest-rate cut, said Enrico Tanuwidjaja, a Singapore-based economist at Royal Bank of Scotland Group Plc. “The baht’s strength is an additional factor to motivate a rate cut.”

The baht was little changed at 29.87 per dollar as of 11:15 a.m. in Bangkok. It is Asia’s best-performing currency this year, data compiled by Bloomberg show. The yield on two-year sovereign debt fell for a fourth day, with the rate on the 3.625 percent note due May 2015 dropping one basis point to 2.68 percent.

Policy makers around the world have moved to counter currency appreciation and stimulate growth, with central banks in Vietnam, India, South Korea, Australia and Europe cutting borrowing costs this month. The Thai central bank’s Monetary Policy Committee is scheduled to meet on May 29.

Lower Forecasts

The state agency today reduced its full-year forecast for gross domestic product to 4.2 percent to 5.2 percent from 4.5 percent to 5.5 percent. It also lowered its export growth target for the year to 7.6 percent from 11 percent.

“We are worried about the second quarter -- if global economic uncertainties remain high and the baht continues to stay strong,” Arkhom Termpittayapaisith, secretary-general of the state planning agency, told reporters. “The economy has shown signs of slowing down, so using interest rates should help,” he said. Monetary policy will also be the fastest way to curb inflows, he said, adding that a 25 basis-point reduction would be too small, and any cut should create an impact.

Governor Prasarn Trairatvorakul signaled on May 9 he may be inclined to lower borrowing costs if economic growth starts to cool. The central bank last month raised its GDP estimate to 5.1 percent and cut its inflation forecast to 2.7 percent.

High-Speed Rail

Prime Minister Yingluck Shinawatra’s administration has raised minimum wages and handed incentives to rice farmers and first-time car buyers to spur growth after the floods of 2011, and plans to spend 2 trillion baht ($67 billion) on high-speed rail links to major cities from Bangkok over the next seven years. Fitch Ratings raised its assessment of Thailand in March, citing a resilient economy and a more stable political climate.

Automakers Nissan Motor Co. and Toyota Motor Corp. have increased production in Thailand as local sales rose to a record last year. Still, the baht’s appreciation is hurting exports, Commerce Minister Boonsong Teriyapirom said in an interview May 1, as overseas sales increased 4.5 percent in the first quarter compared with an 18.2 percent gain in the previous three months.

Thailand’s economy shrank a seasonally adjusted 2.2 percent last quarter from the three months through December, when it expanded a revised 2.8 percent, the agency said today.

The government has no plans to issue “abnormal measures” to stimulate the economy, even as it is concerned about the first-quarter numbers, Kittiratt said today. Asked if the GDP data made an interest-rate cut more urgent, he said he has “emphasized this point all along.”

Before it's here, it's on the Bloomberg Terminal.