Wednesday, April 23, 2014

Thailand holds rate, to ensure stance supports growth

    Thailand's central bank maintained its policy rate at 2.0 percent but said economic growth in the first quarter is expected to contract by more than previously expected and it would "closely monitor economic and financial developments, and ensure that the monetary policy stance continues to lend sufficient support to the economy."
    The easing bias by the Bank of Thailand (BOT) follows a 25 basis point cut in March and one of the members of the bank's monetary policy committee voted to lower the policy rate by another 25 points. But six members of the committee voted to maintain rates.
    "The Committee deems prolonged political uncertainties to be the main cause for higher downside risks to growth. Financial conditions are accommodative, and are not hindering domestic spending," the BOT said.
    In March the central bank said that it had still scope to ease, but omitted that statement today.
    As expected, the bank said growth this year is expected to be lower than forecast and mainly driven by exports while inflationary pressures rose in line with expectations.
    On Sunday, BOT Governor Prasern Trairatvorakul was quoted as saying the central bank would likely lower its 2.7 percent growth forecast in June due to the sluggish economy and the impact of budget problems caused by the dissolution of the Thai parliament.

    In its March monetary policy report, the BOT cut its 2014 growth forest to 2.7 percent from a forecast of about 3.0 percent in January and earlier this month the BOT said first half economic growth may stagnate or decline on slower economic activity.
    Last month the BOT also said private consumption contracted by an annual 2.5 percent in February and investment fell by 7.7 percent as prolonged protests and political stalemate hurt sentiment.
    Tourism, which accounts for some 10 percent of the economy, contacted with February arrivals down 8.1 percent from the same month last year and up to 50 countries have warned tourists about traveling to Thailand.
     The International Monetary Fund has forecast 2014 growth falling to 2.5 percent from 2.9 percent last years, but rebounding to 3.8 percent in 2015.
    Thailand's Gross Domestic Product expanded by only 0.6 percent in the fourth quarter of last year from the third quarter for annual growth of 0.6 percent, down from 2.7 percent in the third quarter.
    "Private investment and tourism have felt greater impact from political uncertainties," the BOT said, adding that exports have gradually improved but not enough to offset overall subdued growth.
    "Looking ahead, the prospect for economic recovery hinges importantly on the political developments," the bank said.
    The BOT cuts its policy rate by 50 basis points in 2013 but political unrest continues to weigh on domestic consumption and undermine consumer confidence.
    Although the global economy is continuing to recover on the back of expansion in advanced economies, the BOT said emerging markets showed signs of moderation and growth in China was decelerating, "with increased risks in the financial sector."
    Headline inflation in March rose to 2.11 percent from 1.96 percent in February while core inflation rose to 1.31 percent from 1.22 percent, the six consecutive month of rising prices after they reached a recent low of 0.61 percent in September.
    The BOT, which targets core inflation of 0.5 to 3.0 percent, in March forecast core inflation this year of 2.5 percent, up from 2.2 percent in 2013, and headline inflation of 1.5 percent, up from 1.0 percent last year.


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