Thai Central Bank Cuts Rate, Flags Further Reductions

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April 11 (Bloomberg) -- Thailand's central bank cut its key

interest rate for a third time this year and signaled borrowing

costs may be lowered further to spur a slowing economy as

confidence slides and anti-government protests mount.

The Bank of Thailand lowered its one-day bond repurchase

rate to 4 percent from 4.5 percent. The decision was expected by

10 of 16 economists surveyed by Bloomberg News.

``Monetary policy could be eased further at an accelerated

pace to support economic growth,'' Suchada Kirakul, a Bank of

Thailand assistant governor, told reporters at press briefing.

``Weak private sector confidence will dampen domestic

spending.''

Protests are planned in Bangkok this week by as many as 12

groups opposed to the September coup and critical of the

military-installed government's performance. The nation's

finance minister has called for lower rates to spur spending

after investment curbs and terrorist attacks eroded confidence.

``It's hard to see how an interest rate cut can have much

of an impact on consumer spending and investment,'' said George

Worthington, an economist at Thomson IFR in Sydney, who

predicted the 50 basis point reduction. ``Political uncertainty

is having a major impact on confidence, so until that is sorted

out the central bank's moves may only have a limited effect.''

Baht

The central bank has cut its key rate by 25 basis points at

two previous meetings this year. The 50-basis-point reduction is

the biggest since June 2003. A basis point is equivalent to 0.01

percentage point.

Thailand's key SET Index added 0.3 percent to 691.47 as off

2:57 p.m. in Bangkok. The nation's benchmark 10-year bonds were

little changed, with yields at the lowest in 21 months. The baht,

which has climbed 2.1 percent this year, was unchanged at 34.97

per dollar in onshore trading.

The baht is near its highest level in nine years after Bank

of Thailand measures to curb its 16 percent surge last year by

penalizing foreign investors backfired. Limits on bringing money

into the country eroded consumer and business confidence,

crimping imports, and caused rifts within the government.

``Their currency controls backfired,'' said Irene Cheung,

an economist at ABN Amro Bank NV in Singapore. ``Using interest

rates is more acceptable to the market, and they can do that

because inflation is low.''

Inflation

Consumer price increases slowed to 2 percent in March, the

lowest in three years, from 2.3 percent a month earlier as

consumption cooled amid a slump in confidence.

``Inflation will remain low and well within our target in

the next eight quarter,'' the Bank of Thailand's Suchada said.

``Domestic demand slowed more than the central bank expected in

the first quarter, particularly private investment and

consumption.''

A measure of business sentiment tumbled to the lowest in

more than five years in February. An index of consumer

confidence fell for a fourth month in February, dropping to a

six-month low. The gauge has slid for 15 of the past 17 months.

``Domestic demand is weak and exports are being squeezed by

the baht,'' said David Cohen, an economist at Action Economics

in Singapore. ``If this does the trick and improves things,

they'll be heroes.''

The World Bank on April 5 cut Thailand's 2007 economic

growth outlook for a second time in five months, lowering it to

4.3 percent from 4.6 percent. The economy expanded 5 percent

last year, with fourth-quarter growth of 4.2 percent the slowest

pace in almost two years.

Groups, including some backed by the Thai Rak Thai

political party founded by deposed Prime Minister Thaksin

Shinawatra, last month began holding anti-government and coup

rallies in Bangkok.

[cclub75]

A perfect non event... ?

A lot of pressure from politicians to put fuel on the fire (the "sufficiency economy"), private sector asking for a big cut of 100 points... On the other hand, BOT asking the gvt to increase its budget deficit...

Everything is up side down.

The cut was anticipated.

Anyway, so today -50. Policy rate is at 4 %. Great. I'm sure millions of good, loyals and well-mannered thai consummers were waiting for those 50 basis points to run after to take loans and buy mountains of stuff... so the sufficiency economy machine can speed up...

Let's see now how react the THB.

Last time, the result was close to the... absolute zero.

Edited April 11, 2007 by cclub75

[sonicdragon]

100 basis pointswould have been a mistake. They can go for another 50 at the next meeting if they think it warrants it at that time . There are a lot of interdependencies and large changes in anything should be avoided.

[lordofdelusion]

I had been waiting for this day for some time as I need to bring US $ over to buy a car. I wonder if and when the Baht will weaken? I had hoped for a bigger cut but as they suggested, they can still act again at a later date.

[Losangels]

Banks and lending institutions will immediately lower their fixed/time deposit interest rate however the lending rate will take some to come down if any at all

[samran]

and the stock market went zoooom.....

[Temporaneo]

The move is insufficient, but at least it is in the right direction.

That's already a biiig result considering how things have been going here recently....