Thai c.bank cuts rate 25 bps to aid growth

Business & Markets 2013
Written by Reuters
Wednesday, 29 May 2013 16:47
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BANGKOK (May 29): Thailand's central bank cut its benchmark interest
rate by 25 basis points to 2.50 percent as expected on Wednesday,
bowing to government pressure to ease monetary policy after weak
first-quarter economic growth data.
The Bank of Thailand (BOT) said the seven-member Monetary Policy
Committee (MPC) - on which the central bank only has three seats -
decided unanimously to cut the one-day repurchase rate rate because
of risks to economic growth.
The policy rate was last changed in October, when it was cut 25 basis
points. The central bank, which long resisted government pressure to
further cut rates, had called the 2.75 percent level appropriate and said
it was worried about high credit growth and household debt.
Out of 19 economists polled by Reuters before the decision, 13 said the
MPC would trim the one-day repurchase rate by 25 basis points while
one forecast half a point. Five saw no change, saying economic growth
remained solid and monetary policy was already providing support.
For months, Finance Minister Kittirat Na Ranong has pressured the
MPC to ease policy to deter capital inflows, which pushed the baht up
to a 16-year high of 28.55 per dollar last month, and to help exporters.
On Monday, Kittirat said he wanted Wednesday's meeting to slash the
rate by at least 50 basis points, and that a failure to do so would show
MPC members were indifferent to what was happening in the country.
Since its April peak - which put the baht up 7 percent against the dollar this year - the currency has retreated, leaving it only
up about 1.5 percent against the dollar.
The baht, which touched a four-month low early on Wednesday before the MPC decision, strengthened briefly 10 30.14
before slipping to 30.17 to the dollar.
In a statement, BOT Assistant Governor Paiboon Kittisrikangwan said the MPC felt that downside risks to the economy have
increased from lower-than-expected first quarter growth that stemmed from "tepid domestic demand which could weigh on
overall economic momentum particularly if there was delay in government's infrastructure investment expected to start later
this year".
He said the Chinese and Asian economies are growing less quickly than expected, "which may cause a delay in Thai exports'
recovery".
"As inflation remains well within the target, monetary policy has room to further cushion against downside risks to domestic
demand," Paiboon added.
Gundy Cahyadi, economist at OCBC Bank in Singapore, said the unanimous decision reflected a clear desire to lower rates,
"although the bulk of the drag to the economy has stemmed from the external front and the rate cut may do little to spur
demand on the domestic economy at this juncture."
Q1 data changes views
Few economists foresaw a rate cut until data released on May 20 showed domestic demand and growth were weakening.
According to the national planning agency, Southeast Asia's second-largest economy shrank a bigger-than expected 2.2
percent in January-March from the previous period and grew by a less-than-forecast 5.3 percent from the first quarter of
2012.
That same day, the agency cut its 2013 GDP growth forecast to 4.2-5.2 percent from 4.5-5.5 percent earlier.
Five weeks earlier, the central bank raised its 2013 economic growth forecast to 5.1 percent from 4.9 percent.
As global demand remains tepid and inflation is largely contained, central banks across Asia have been keeping monetary
policy easy to help their economies.