Thailand Cuts Interest Rate as Floods Force First Policy Easing Since 2009
The central bank reduced its one-day bond repurchase rate by a quarter of a percentage point to 3.25 percent, it said in Bangkok today. Nine of 17 economists in a Bloomberg News survey predicted the decision, with the rest expecting a half-point cut. The central bank said gross domestic product will rise 1.8 percent in 2011, less than an earlier 2.6 percent estimate.
The move to prop up the economy follows the worst slump in industrial output in October since at least 2000 and the lowest consumer confidence in a decade, after the floods killed more than 600 people and shut thousands of factories. Thailand joins Indonesia in cutting rates this month, as the threat from the debt crisis in Europe adds pressure on Asia to shield growth.
“We expected a 50 basis-point cut as the next meeting is two months away,” said Nalin Chutchotitham, an economist at Kasikornbank Pcl in Bangkok. “They probably wanted to retain some firepower to withstand the impact of the global slowdown.”
The baht strengthened 0.3 percent to 31.19 per dollar as of 3:21 p.m. local time. The benchmark SET Index (SET) climbed 0.9 percent. The currency has slipped 3.7 percent in the past three months and the stock index is down about 4.7 percent.
Further Easing Possible
The central bank said today it may ease policy further if the nation struggles to recover from the inundation. It forecast 4.8 percent growth in 2012, spurred by reconstruction, up from 4.1 percent earlier.
“Inflation is still controllable, giving us room to support the economy,” Assistant Governor Paiboon Kittisrikangwan said at a briefing after the rate cut. “There are uncertainties about the global economy and the pace of reconstruction after the floods. We can adjust monetary policy if needed.”
Prime Minister Yingluck Shinawatra, elected in July on pledges including higher minimum pay and rice prices, has proposed further expenditure of 130 billion baht ($4.2 billion) on rebuilding and steps to prevent future floods.
The government expects the economy to shrink 3.7 percent this quarter. The damage bill may reach 400 billion baht, Barclays Plc has said.
Food shortages caused by crop damage threaten price gains. Consumer inflation accelerated to 4.4 percent this month, the fastest pace since 2008, according to the median estimate in another Bloomberg survey. The data are due tomorrow.
Morgan Stanley and Citigroup Inc. lowered Asian economic estimates this week as Europe’s turmoil risks a global slump. India’s GDP expanded 6.9 percent in the third quarter from a year earlier, the slowest pace since 2009, a report showed today.
Three of 17 economists in a Bloomberg survey predict the Philippine central bank will reduce borrowing costs tomorrow to 4.25 percent from 4.5 percent, with the rest expecting no change.
Industrial output in Thailand, a manufacturing hub for Japanese businesses, fell 35.8 percent last month from a year earlier. The now receding waters affected factories operated by companies such as Western Digital Corp. and Honda Motor Co.
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