Wednesday, March 12, 2014

Thailand cuts rate on higher risks to growth from unrest

    Thailand's central bank cut its policy rate by 25 basis points to 2.0 percent, saying "downside risks to growth have risen in the wake of the prolonged political situation" and that "monetary policy has some scope to ease, in order to lend more support to the economy and ensure continuous financial accommodation."
    But it was a close decision with the Bank of Thailand's (BOT) Monetary Policy Committee voting by 4 to 3 to reduce the rate, with the minority doubting that a rate cut would help boost growth as the weak economy is due to political unrest that has unnerved consumers and kept tourists away.
   The three members of the committee that voted to maintain rates were quoted as saying the bank's policy was already accommodative and the main headwinds to growth were not financial in nature.
    "Monetary policy should be used when it is effective in supporting the economic recovery," the bank said, a sign of how intense the committee's debate had been.
    The BOT cut its rate by 50 basis points in 2013 and at its last meeting in January it voted by 4 to 3 to maintain rates, with three voting for a rate cut. At that time it also said political unrest was weighing on the growth outlook and cut the 2014 growth forecast to 3 percent from a previous forecast of 4 percent.
     A narrow majority of economists had expected the BOT to cut rates today, with those expecting the central bank to maintain rates citing stable inflation.

    Thailand's headline inflation rate rose slightly to 1.96 in February from 1.93 percent in January with the Thai baht strengthening slightly in the last month after falling sharply in 2013 as political unrest added to the general negative international sentiment toward emerging market currencies.
    The BOT noted that core inflation had edged up but remained subdued. Core inflation rose to 1.22 percent in February from 1.04 percent the previous month. The BOT targets core inflation of 0.5 percent to 3.0 percent.
    "Growth of the Thai economy slowed through the final quarter of 2013 and January 2014 from domestic demand amid lower private confidence," the BOT said, adding that tourism has felt more of an import from the political situation.
    Thailand's Gross Domestic Product rose by only 0.6 percent in the fourth quarter of 2013 from the third quarter for annual growth of 0.6 percent, sharply down from a rate of 2.7 percent in the third quarter.  
    "Prolonged political uncertainties would continue to impede the recovery of private consumption and investment," the bank said.
    But economic growth should be supported by a gradual recovery of exports, the BOT said, adding that the global economic had continued to recover in the last two months, led by the major economies.
    Thailand's exports eased further in January to US$ 17.907 billion, the fifth month in a row with declining exports.
    Along with many other emerging market currencies, the Thai baht fell from late April 2013, hitting a low of 33.075 to the U.S. dollar on Jan. 7, 2014, a drop of 13.5 percent. But since then the baht has recovered somewhat, trading at 32.44 to the dollar today, down 0.7 percent since the start of 2014.
    Protestesters accused the former prime ministers, Yingluck Shinawatra, of corruption and are still occupying parts of the capital of Bangkok. A general election in February was disrupted by the protesters, leaving Yingluck with a caretaker government with limited powers to act.



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