Thai Rate Cut More Than Expected on Protest, Politics
Thailand’s central bank cut its benchmark interest rate for the first time in 17 months to support an economy hurt by domestic political turmoil and the global recession.
The Bank of Thailand reduced its one-day bond repurchase rate by 1 percentage point to 2.75 percent, it said today in Bangkok. None of the 21 economists surveyed by Bloomberg News expect such a large cut.
Thailand joins Asian countries from Malaysia to China in lowering borrowing costs as inflation cools amid easing commodity prices and slowing global demand. A court ruling yesterday forced Prime Minister Somchai Wongsawat to step down and dissolved the ruling party, prompting protesters to end their eight-day occupation of Bangkok airports while stalling government efforts to spur the economy by increasing spending.
“Fiscal policy is non-existent because of political troubles,” said Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc. in Manila. “Monetary policy has to be the stimulus.”
Thailand’s SET Index of stocks extended gains after the announcement, rising 2.7 percent and paring its loss this year to 54 percent. The baht was little changed at 35.6 per dollar, erasing an earlier gain of as much as 0.6 percent.
Asian central bankers are shifting their focus to boosting growth as inflation worries ease and the global economic slump deepens with the U.S., Japan and Europe sliding into recession free credit reports.
Thailand’s economic growth slowed to 4 percent in the third quarter as exports cooled and the violent political protests damped domestic spending. Inflation eased to 2.2 percent in November, the slowest pace in 14 months.
Growth Stagnates
Southeast Asia’s second-largest economy may not expand next year, as the closure of Bangkok’s two main airports hurts tourism and a global recession trims exports, Finance Minister Suchart Thadathamrongvej said Dec. 1. He forecasts growth of between zero and 1.3 percent in 2009.
“Monetary policy has limited impact amid a slowing economy,” said Prasarn Trairatvorakul, president of Kasikornbank Pcl, the nation’s fourth-largest lender. “The focus next year is how to manage the soft landing for the economy. With our local political problems, we will have less immunity and may feel a stronger impact from the global slowdown.”
Anti-government protesters, who occupied former Prime Minister Somchai’s Bangkok offices for three months, stormed the country’s main airports last week. The demonstrators agreed to leave after Thailand’s Constitutional Court yesterday dissolved the ruling People Power Party and two coalition partners, forcing Somchai and dozens of leaders to step down.
Filed under: economics by Finance Boss