By CentralBankNews.info
Thailand’s central bank cut its policy rate by 25 basis points to 2.25 percent, saying “given the benign inflation outlook and moderating household credit growth, there is room for monetary policy to mitigate downside risks to the economy.”
The Bank of Thailand (BOT) has now cut rates twice this year for a total cut of 50 basis points.
Most economists had expected the central bank to maintain rates due to concern over high household debt and fears that an expected reduction in asset purchases by the U.S. Federal Reserve in coming months could lead to outflow of capital and downward pressure on the Thai baht.
“The committee judges the the Thai economy is expanding at a lower pace than previously assessed, with greater downside risks compared with the last meeting,” the BOT said after a meeting of its monetary policy committee.
The committee voted by 6 members to 1 to cut the rate, with one member judging the current rate to be sufficiently accommodative and voting to maintain the rate.
At its previous meeting in October, the BOT had said the Thai economy was stabilizing and should gradually recover with the current accommodative stance supporting economic recovery.
But following that meeting, the BOT revised downward its growth forecasts for this year and 2014 in its quarterly policy report due to slower-than-expected growth.
The BOT’s forecast for Thailand’s Gross Domestic Product was revised down to growth of 3.7 percent this year from a previous forecast of 4.2 percent and 2014 growth was revised down to 4.8 percent from 5.0 percent.
In the third quarter of this year, Thailand’s GDP expanded by 1.3 percent from the second quarter for annual growth of 2.7 percent, down from 2.9 percent in the second quarter.
Recently, the Thai state’s planning agency has cut its 2013 growth forecast to 3.0 percent from a previous 3.8-4.3 percent.
The BOT said that growth in the third quarter was weaker than expected from both the private and public spending and a recovery in exports had not gained traction.
“Looking ahead, there are higher downside risks to growth stemming from a delay in government investment and fragile private confidence, which could be compounded by the ongoing political situation,” the BOT said.
Although the central bank said the global economy was continuing to recover, it said that exports might not fully benefit from this recovery and high uncertainty over the outlook for monetary and fiscal policies in the United States continued to weigh on financial markets.
Thailand’s headline inflation rate rose marginally to 1.46 percent in October from 1.42 percent in September and the BOT last month revised downward its inflation forecast for this year to 2.2 percent from a previous 2.3 percent and the 2014 forecast to 2.4 percent from 2.6 percent.
The BOT targets core inflation of 0.5 to 3.0 percent and said that inflationary pressures remained subdued while private credit decelerated in line with the economy.
The BOT did not make any references to the baht, which has weakened in the last month and fell by 0.4 percent to 32.16 baht to the U.S. dollar following the rate cut.
From the beginning of the year to late April, the bath rose by almost 6 percent to a high of 28.6 baht by late April. But it then started to depreciate after Thai authorities voiced their concern over the impact of the rise on exports, a rate cut in May and a general decline in most emerging market currencies following expectations that the Federal Reserve would start tapering its asset purchases.
Compared with the the end of last year, the Thai bath is down by 4.8 percent.
