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Thailand surprises with rate cut as risk to growth rises

Wednesday, April 29, 2015 - 16:21

[BANGKOK] Thailand's central bank surprised markets by cutting its key interest rate for a second straight meeting on Wednesday, with policymakers under pressure to revive the stumbling economy.

The Bank of Thailand's monetary policy committee (MPC) voted 5-2 to cut the one-day repurchase rate by 25 basis points to 1.50 per cent, confounding expectations for no change in a Reuters poll of economists.

At the last meeting on March 11, the committee also unexpectedly cut the policy rate by 25 basis points, the first rate change in a year, but the vote was a close 4-3. "It is rather unexpected and signals desperation and strong disagreement with the official forecasts. A cut strongly suggests very low confidence in growth projections and is rather bold ahead of the US Federal Reserve's decisions," said Kobsidthi Silpachai, head of capital markets research, at Kasikornbank in Bangkok.

The MPC said in a statement economic growth was weaker than expected and there was a risk consumer prices would fall further. It added that proposed higher government spending would not be able to offset the slide in exports.

The central bank said it would announce measures on capital movements on Thursday.

The meeting comes as a recent poll showed massive unhappiness with the military-led government's economic and political performance nearly a year after they seized power.

The junta seized power in a coup last May to end months of political unrest but has struggled to revive Southeast Asia's second-largest economy which grew only 0.7 per cent last year.

Earlier on Wednesday, Thailand's finance ministry trimmed its 2015 growth forecast to 3.7 per cent from 3.9 per cent, due to sluggish exports. Its export estimate for the year was cut to just 0.2 per cent from 1.4 per cent.

The baht extended losses to hit 32.75 per dollar, its weakest since March 23 after the announced rate cut.

REUTERS