Wednesday, July 10, 2013

Thailand holds rate, sees growth returning to normal path

    Thailand's central bank unanimously voted to maintain its policy rate at 2.50 percent, saying the pace of economic growth was slowing to a more normal pace and it was closely monitoring the "rapidly changing global economic and financial conditions, as well as risks to domestic financial stability."
    The Bank of Thailand (BOT), which cut its rate by 25 basis points at its previous meeting in May due to an rise in downside economic risks, said the domestic environment with high employment and private spending was supporting the recovery, which was also helped by accommodative monetary and fiscal policies that were reflected in continued growth of private credit and fiscal deficits.
    Thailand's Gross Domestic Product contracted by 2.2 percent in the first quarter compared with a quarterly expansion of 2.8 percent in the fourth quarter. On an annual basis the economy grew by 5.3 percent, down from 19.1 percent in the fourth quarter when growth was boosted by government stimulus measures following extensive flooding in 2011.
    But Thailand's economy has been hit by a slowdown in China along with a softening of domestic consumption "as consumers exercise more caution partly as a result of rising debt burden, coupled with waning government consumption stimulus measures," the BOT said, adding weak domestic and external demand had caused delays in private investment.

    "The global economy expanded less than previously assessed due to China's economic slowdown, which weighed on Asian exports, despite some improvement in the U.S. economy from better housing and labour market conditions," the BOT said.
    The BOT is expected to revise downward its economic growth forecasts and last week a member of the BOT's policy committee said growth could ease to 4.5 percent this year from a forecast 4.9 percent, with the country facing the risks of capital outflows.
    In June the IMF forecast Thai growth of 4.75 percent this year and 5.25 percent in 2014 compared with growth of 6.4 percent in 2012.
    Earlier this year Thailand found itself on the front lines of the currency wars as Japan's launch of aggressive monetary easing from April lead to a rise in the baht, triggering fears of large capital inflows into such countries as Thailand.
    Thai authorities prepared measures to combat a rise in the baht whose strength threatened to make Thai exports uncompetitive at a time of slowing exports due to slower growth in China.
    Fears of intervention in foreign exchange markets by Thai authorities helped take the pressure off the baht in late April and then in May the currency weakened further, along with many other emerging market currencies, as capital flowed out of these riskier markets as major investors responded to an earlier-than-expected pullback in the U.S. Federal Reserve's asset purchases.
    In today's statement, the BOT did not make any reference to the Thai baht apart from the reference to "rapidly changing global economic and financial conditions."
    From the start of the year to late April, the Thai bath rose by almost 6 percent, hitting a high of 28.6 baht to the U.S. dollar, but since then it has dropped by almost 10 percent, quoted at 31.36 to the U.S. dollar today.
    Thailand's headline inflation rate eased marginally to 2.25 percent in June from 2.27 percent in May with the BOT saying inflationary pressures had eased from softer demand and lower production costs.
    Last year Thailand's headline inflation rate was 3.0 percent with core inflation of 2.1 percent and the BOT has forecast headline inflation this year of 2.8 percent and core inflation of 1.7 percent.


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