Thailand Holds Key Rate as U.S. Default Deadline Approaches

Thailand kept its benchmark interest rate unchanged for a third meeting, refraining from monetary easing even as the threat of a U.S. default adds to growth risks from delayed government spending and weakening local demand.

The Bank of Thailand held its one-day bond repurchase rate at 2.5 percent, with all six monetary policy committee members present voting in favor, it said in Bangkok today. All 18 economists in a Bloomberg News survey predicted the decision.

Senate Democratic and Republican leaders said they are resuming negotiations toward a solution that would reopen the U.S. government and prevent the nation from running out of borrowing authority on Oct. 17. Thailand’s decision to hold the rate is at odds with the Finance Minister Kittiratt Na-Ranong, who said earlier this month it is “too high.”

“With signs the economy is bottoming out and high household debt already factors, the U.S. default risk may have further encouraged the BoT to hold the rate,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “The government probably wants the central bank to cut rates because of the slower inflation and weaker growth environment, but the BoT may remain cautious about cutting.”

The baht was little changed at 31.27 against the dollar as of 3:56 p.m. in Bangkok. It advanced 2.9 percent against the dollar last month, the third-best performance among Asia’s 11 most-traded currencies tracked by Bloomberg, after the Federal Reserve decided to postpone tapering its monthly asset purchases, diminishing the risk of capital outflows from emerging markets.

Forecasts Cut

The Asian Development Bank this month lowered its growth forecasts for developing Asia, and international finance chiefs last week warned that failure by U.S. lawmakers to resolve their debt spat would hurt the global recovery.

Prime Minister Yingluck Shinawatra’s two-year-old administration has tried to speed up budget disbursement and boost local demand as plans to spend 2 trillion baht ($64 billion) on infrastructure and 350 billion baht on water-management projects have stalled. The budget for the fiscal year from Oct. 1 received a court approval on Oct. 4, while the bill to finance infrastructure projects is still in parliament.

The Thai finance ministry last month cut its forecast for expansion this year to 3.7 percent from 4.5 percent, and for export growth to 1.8 percent from 5.5 percent. The central bank said it will announce its revised estimates on Oct. 25.

‘Substantial’ Risk

“Failure to lift the debt ceiling poses a substantial risk to global financial and economic stability,” Assistant Governor Paiboon Kittisrikangwan said today in a statement. While the Thai economy has begun to stabilize and the outlook points toward a gradual growth rebound, “key downside risks stem from uncertain global recovery as well as a delay in financial disbursement, especially for infrastructure projects,” he said.

The government last month agreed to expand subsidies for rice and rubber farmers to quell protests, a move seen as undermining the government’s efforts to curb rising debt. Falling commodity prices may increase pressure on the economy, which unexpectedly contracted 0.3 percent in the three months through June from the previous quarter, when it shrank by 1.7 percent, official data showed.

Total loans to Thai households rose to 9.28 trillion baht in the quarter through end-June, compared to 8.98 trillion baht in the previous three-month period, according to central bank data. Second-quarter household debt was 81.5 percent of GDP, compared with 78.9 percent in the first three months, according to calculations by Bloomberg.

Exports rose 3.9 percent in August from a year earlier, the first gain in four months. Consumer prices climbed 1.42 percent in September from a year earlier, the least since Oct. 2009.

The economy will expand at least 3 percent in the third quarter as exports revive, government spokesman Teerat Ratanasevi said earlier today, after a meeting with official forecaster the National Economic and Social Development Board. The NESDB is maintaining its full-year growth forecast at 3.8 percent to 4.3 percent, Teerat said.

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