Thailand Holds Key Interest Rate as Stimulus Kicks In
Thailand’s central bank kept its benchmark interest rate unchanged at a second straight meeting amid signs government spending has helped moderate the pace of the nation’s economic contraction.
The Bank of Thailand held the one-day bond repurchase rate at 1.25 percent, it said in a statement today. That’s the lowest level since July 2004. Seventeen of 18 economists surveyed by Bloomberg News expected the decision. One economist predicted a 25 basis-point cut.
The decision “indicates confidence that the economy has bottomed out and may rebound without further monetary policy easing,” said Rapee Sucharitakul, executive chairman of Kasikorn Asset Management Co., Thailand’s biggest mutual-fund company with 470 billion baht ($13.8 billion) of assets. “Higher government spending will be a key driver for growth from now on.”
Thailand’s consumer confidence rose for the first time in five months in June after the seven-month-old government said it would spend more than 1.4 trillion baht by the end of 2012. Policy makers in the Southeast Asian nation have begun saying the economy may be past the worst after declines in exports and manufacturing stabilized.
Policy makers “assessed that the growth of the Thai economy would improve going forward provided that the global economic recovery sustained and the fiscal impetus started to intensify,’” the central bank said. The current monetary policy is “accommodative and would be supportive of an economic recovery in a subdued inflation environment.”
Stocks Climb
Thailand’s benchmark SET Index rose 1.8 percent to 587.93 as of 4.01 p.m. local time, extending earlier gains. The gauge has climbed more than 42 percent from this year’s lowest level on March 9. The baht, among the top three gainers of Asia’s 10 most-traded currencies outside Japan in the past three months, added 0.2 percent to 34.10 per dollar.
“The economy has stabilized,” the central bank’s Assistant Governor Paiboon Kittisrikangwan said in Bangkok today. “When the global economic recovery gains more momentum, it will fuel the Thai economy.”
The Central Bank of Sri Lanka this week kept its key rate unchanged as it waits to see if three reductions this year are enough to stoke an economic revival. South Korea’s central bank has held borrowing costs at a record low for five months as the economy recovers, and Malaysia refrained from lowering its overnight policy rate for a second meeting on May 26.
Worst Over
“The worst is behind us,” said William Heinecke, chief executive officer at Minor International Pcl, which operates food and hotel businesses in Thailand fast cash now. He expects to see “some improvement” in the third quarter.
Singapore’s government yesterday raised its 2009 economic forecast as the nation emerged from its deepest recession since at least 1965. South Korea last month lifted its outlook for gross domestic product for this year and next, citing the benefit of lower borrowing costs and government stimulus.
China’s GDP expansion may have accelerated in the second quarter, snapping a two-year run of progressively slower growth, a survey shows.
The Bank of Thailand cut its benchmark interest rate by a total of 2.5 percentage points to 1.25 percent in the four meetings from December to April. Consumer prices have been falling since January.
Ready to Cut
The central bank is ready to cut interest rates if needed should economic risks increase, and inflation isn’t “an issue,” Paiboon said.
“We don’t know whether it will help much, but it’s better than doing nothing,” he said. “When the rate is close to zero, the effectiveness is lower. There is no need to signal whether the rate has bottomed out or will rise soon.”
Thailand’s government last month won parliamentary approval to borrow 800 billion baht locally to fund its three-year investment plans involving transportation, water distribution, health and education projects. That’s in addition to a 116.7 billion-baht stimulus package of training programs, cash handouts and public works.
“Government spending should take the lead now,” said Kannikar Chalitaporn, president of Siam Commercial Bank Pcl, the nation’s largest lender by capitalization. “Infrastructure projects will create jobs and boost investment.”
The central bank on June 30 said economic conditions stabilized in April and May. Industrial production fell 10 percent in May, compared with a 9.7 percent decline a month earlier. Exports, which are equivalent to about 60 percent of the Thai economy, slid 26.5 percent in May, after a 25.2 percent drop in April.
Southeast Asia’s second-largest economy shrank 7.1 percent in the first quarter, a second consecutive quarterly decline that pushed the nation into recession. The contraction will lessen in subsequent quarters and growth will resume in the last three months of the year, the government predicts.
Filed under: legal by Finance Boss