Thai central bank cuts rate

FT Home

By Amy Kazmin in Bangkok

Published: April 11 2007 18:14

The
Bank of Thailand cut its benchmark interest rate by 50 basis points on
Wednesday in a bid to stimulate the faltering economy, as political and
policy uncertainty weighed on consumers and investors.

The move was expected by analysts, who had been highly critical
of the central bank’s reluctance last year to lower interest rates,
even as the baht, the local currency, appreciated sharply against the
dollar.

The
central bank cited weaker than expected domestic demand and lower
inflation as supportive of a rate cut. It also said monetary policy
could be eased further and faster to support growth in coming months.

Thai executives had urged the central bank to cut rates by 1
per cent to revive confidence and kickstart an economy that some
project will grow less than 4 per cent this year.

Thais are
increasingly anxious about the prospects for the promised restoration
of democracy, after the September military coup that drove Thaksin
Shinawatra, the former prime minister, from power.

Although the
military-installed government has promised to hold fresh elections in
December, concerns are mounting that simmering political tensions –
partially stoked by Mr Thaksin’s supporters – could erupt into fresh
street demonstrations, like those that rocked Bangkok for several
months last year.

Gen Surayud Chulanont, the mild-manner, highly
restrained prime minister, has also been unable to inspire much
confidence in a population accustomed to Mr Thaksin’s charisma and
media savvy qualities. Gen Surayud, who was in hospital for medical
tests on Monday, went home Wednesday, but is still dogged by rumours of
his imminent resignation persist.

As a result of all these
political jitters, many Thai companies and consumers are curbing their
spending. Meanwhile, foreign investor confidence has been undermined by
the government’s plans to make foreign investment laws more
restrictive.

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