Thailand Signals Room To Ease Policy As Growth Forecast Cut

Thailand’s central bank signaled it has room to cut interest rates to protect the economy from a global slowdown as it lowered the country’s growth and inflation forecasts after keeping borrowing costs unchanged.

The Bank of Thailand is ready to do more to support growth if risks escalate, Assistant Governor Paiboon Kittisrikangwan said today, after the monetary authority held its benchmark one- day bond repurchase rate at 3 percent as predicted by all 14 economists in a Bloomberg News survey. It cut its growth forecast for the year to 5.7 percent from 6 percent.

The Southeast Asian country has refrained from joining nations from Brazil to China in easing monetary policy as the economy recovers from floods last year that disrupted the supply chains of companies including Toyota Motor Corp. Europe’s sovereign-debt crisis has hurt demand for exports from Thailand, which this month marks 15 years since its baht devaluation sparked the Asian financial crisis.

“If Europe’s situation worsens further, it’s possible Thailand will cut interest rates,” said Satoshi Ushijima, the Bangkok-based vice president of the treasury division at Mizuho Corporate Bank Ltd. “If the BOT moves before the end of this year, rather than holding rates, it will be a cut, as they lowered the growth forecast.”

The Thai baht rose 0.2 percent to 31.72 per dollar as of 3:29 p.m. in Bangkok. The benchmark SET index was little changed, having gained about 15 percent this year. The currency has declined 0.6 percent.

Inflation Revised

Thai Prime Minister Yingluck Shinawatra has raised minimum wages and will spend as much as 2 trillion baht ($63 billion) over seven years on infrastructure projects to boost growth after last year’s floods. The $346 billion economy unexpectedly expanded 0.3 percent from a year earlier in the first quarter, after contracting 8.9 percent in the previous three months.

The Bank of Thailand today cut its growth forecast for 2013 to 5 percent from 5.4 percent. Inflation this year will be 2.9 percent from an earlier estimate of 3.3 percent, it said, while keeping the core inflation forecast at 2.2 percent.

Consumer prices climbed 2.56 percent from a year earlier in June, after rising 2.53 percent in May.
The central bank also cut its export growth forecast for the year to 7 percent from 8.3 percent. Overseas sales in June fell 2.5 percent from a year earlier, a report today showed.

Risks Ahead

Two members of the seven-member monetary policy committee voted today for a 25 basis-point cut in borrowing costs, the Bank of Thailand said, adding that its current rate is accommodative. The central bank cut the benchmark rate by a quarter of a percentage point each in November and January.

“We have room to adjust monetary policy to support economic growth if needed,” Paiboon said in Bangkok today. “We think the global economic problems will prolong and there are more risks ahead. So we should save our bullets to use when it’s necessary. If the situation becomes worse, we are ready to do more.”

The International Monetary Fund last week cut its global growth forecast for next year to 3.9 percent, and the Asian Development Bank said the region’s economies may need to ease monetary and fiscal policies further, after reducing its predictions for expansion for 2012 and 2013.

Europe was plunged into fresh turmoil this week as the first call for bailout aid by a Spanish region sent borrowing costs surging, while Moody’s Investors Service lowered Germany’s rating outlook to negative. The IMF today said China’s slowing economy faces significant downside risks, while Singapore’s central bank said growth may fall below 1 percent should the U.S. economy worsen and if the euro-area crisis escalates.

While domestic demand growth has been maintained, the worsening global outlook has hurt exports, the central bank said today, adding that it will closely monitor developments and stand ready to take “appropriate action as warranted.”

“It’s definitely possible the BOT will cut rates depending on external conditions,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “They cut the growth forecast while inflation has been stable with no prospect of a sharp rebound. So a rate cut will be one of the options.” -Bloomberg (July 26, 2012)