Thailand Cuts Interest Rate for Fifth Time This Year (Update2)

Bloomberg


       
                                        .

The headquarters of the Bank of Thailand

By Anuchit Nguyen

July 18 (Bloomberg) — Thailand’s central bank cut its
benchmark interest rate for the fifth consecutive time this year
to spur an economy blighted by slumping consumer confidence
after last year’s military coup.

The Bank of Thailand reduced its one-day bond repurchase
rate to 3.25 percent from 3.5 percent. The decision was expected
by seven of 17 economists surveyed by Bloomberg News. Nine of
the economists predicted the rate to be kept unchanged, while
one forecast a half-percentage point reduction.

Lower interest rates may help the baht retreat from a 10-
year high against the dollar, making exporters more competitive.
Southeast Asia’s second-biggest economy may expand as little as
3.8 percent this year, the slowest pace since 2001. Consumer
confidence is at the lowest level in five years amid protests
against the junta-installed government.

“Consumption and investment remain weak,” said Usara
Wilaipich, an economist at Standard Chartered Bank in Bangkok,
who predicted the reduction. “Inflation is not a concern now
because a slump in spending has curbed price increases.”

Thailand’s inflation rate held close to a three-year low of
1.9 percent in June.

Today’s reduction extends the central bank’s longest string
of cuts since it adopted inflation targeting in May 2000.
Brazil’s central bank today will probably cut its benchmark to
11.5 percent, a 17th straight reduction. Indonesia’s central
bank on July 5 lowered its benchmark to 8.25 percent, the 13th
cut since May last year.

Baht, Bonds

The baht was 33.47 per dollar in onshore trading as of 4:39
p.m. in Bangkok, from 33.46 before the decision. Its 3.3 percent
gain this month is the most among 10 most-actively traded Asian
currencies, according to data compiled by Bloomberg.

The yield on Thailand’s 10-year government bonds fell 4
basis points to 4.47 percent, according to Deutsche Bank AG.

Consumer confidence dropped each month but two since a
military coup on Sept. 19.

“Domestic demand slowed down more than expected,” Suchada
Kirakul, the central bank’s assistant governor, told reporters
after today’s monetary policy committee meeting. “The rate cut
will boost private consumption.”

Deputy Prime Minister Kosit Panpiemras yesterday said there
was “room for interest rates to fall further.”

`Target in Mind’

Finance Minister Chalongphob Sussangkarn reiterated the
view, saying “I have a target in mind.” Monetary policy should
take into account the exchange rate, along with economic growth
and inflation, Chalongphob said.

The central bank’s Suchada said today’s rate decision “had
nothing to do directly with the baht’s strength.”

Thailand’s baht this week surged to the highest level in
almost a decade against the dollar. The decline in domestic
consumption has curbed imports this year while exports have
climbed, increasing demand for the local currency.

The central bank has recommended a package of “measures”
to the government to curtail baht gains, Suchada said. Prime
Minister Surayud Chulanont earlier today said the baht probably
won’t strengthen to 30 per dollar because the government will
take steps to stem its advance.

The nation has been relying on exports, which account for
60 percent of gross domestic product, to propel the economy as
local demand and investment slow.

“Any measures that don’t need Cabinet approval will be
issued as soon as possible,” Surayud told reporters today in
Bangkok. “Those that may need approval from Cabinet will be
proposed to the Cabinet meeting next week.”

Thailand hasn’t had an elected government since February
2006, when former Prime Minister Thaksin Shinawatra dissolved
parliament to quell street protests. A poll in April last year
was annulled by a court and Thaksin’s caretaker government ran
the country until ousted by the junta’s putsch.

To contact the reporter on this story:
Anuchit Nguyen in Bangkok at
anguyen@bloomberg.net

Last Updated: July 18, 2007 05:47 EDT

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