Wednesday, January 22, 2014

Thailand holds rate, political situation weighs on growth

    Thailand's central bank maintained its policy rate at 2.25 percent but cautioned that the current political unrest was denting confidence and weighing on the outlook for growth.
    The Bank of Thailand (BOT), which cut rates twice last year by a total of 50 basis points, said its monetary policy committee deemed the current stance to be accommodative and "appropriately supporting of economic recovery" and while the political situation posed a risk to growth, "sound economic fundamentals should help the economy weather these short-term risks."
    The committee voted by a narrow majority of 4 to 3 to maintain rates, with three voting to cut the rate by 25 basis points "to cushion the economy against rising downside risks to growth, given contained inflationary pressure."
    But the BOT said safeguarding financial stability remained a cornerstone for economic recovery and said it would "closely monitor developments of the Thai economy and stands ready to take appropriate actions as warranted."
    Economists were split in their expectations to the BOT's decision following months of political protests and the imposition of state of emergency in the capital of Bangkok.

    Protesters accuse the prime minister, Yingluck Shinawatra, of corruption and want to remove the influence of her brother, ex-premier Thaksin Shinawatra, who was ousted by the army in 2006 and is in exile in Dubai after being convicted of abuse of power in 2008.
   The prime minister dissolved parliament in December and called for a general election on Feb. 2 but protesters have rejected the election, calling for changes to the electoral system.
    The unrest since late October has hurt tourism and business confidence, with the Thai baht currency falling as nervous international investors have sold Thai assets.
    The central bank said the Thai economy was expected to grow less than previously assumed due to soft domestic demand and this would lead to lower-than-expected growth for 2013.
   The BOT's latest forecast calls for growth of 3.7 percent in 2013 and 4.8 percent in 2014. Thailand's Gross Domestic Product expanded by 1.3 percent in the third quarter from the second for annual growth of 2.7 percent, down from 2.9 percent.
   Exports are expanding at a subdued pace, the BOT said, adding that the global economy is continuing to recover, with the U.S. economy expanding on the back of strong domestic demand, China's economy expanding steadily and exports of Asian economies recovering at a gradual pace.
   Along with many other emerging market currencies, the baht fell from late April 2013 to early September but then rebounded. But from late October through the end of December the baht fell by 5.2 percent. Today the baht was trading at 32.9 to the U.S. dollar, down 7 percent since end-2012.
   Thailand's headline inflation rate eased to 1.67 percent in December, down from 1.92 percent in November, and core inflation was 0.91 percent. The BOT targets core inflation of 0.5-3.0 percent.


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