BOT Cuts Interest Rate More Than Economists Expect

[Jai Dee]

Thai Rate Cut More Than Expected on Politics, Slump

Thailand’s central bank cut its interest rate more than economists expected for a second month after inflation cooled to the slowest pace in six years and political protests sent confidence to a record low.

The Bank of Thailand lowered its one-day bond repurchase rate by three-quarters of a percentage point to 2.00 percent. The decision was expected by four of 19 economists in a Bloomberg News survey.

Thailand joins Indonesia, South Korea and Taiwan in cutting borrowing costs this month as the global recession curtails demand for Asian exports. Premier Abhisit Vejjajiva, four weeks into the job, is spending more to counter a slump in tourism and domestic demand after six months of political turmoil.

“The cuts will have to continue,” said Isara Ordeedolchest, an economist at KTB Securities Ltd. in Bangkok who predicted today’s 75-basis point reduction. “The economic numbers are coming down on every front and inflation is slowing sharply.”

The SET Index of stocks swung between gains and losses after the decision at 2:30 p.m. in Bangkok. It fell 0.6 percent as of 3:14 p.m.

“Some investors think if the economy is not in jeopardy, why does the Bank of Thailand have to cut rates so much?,” said Kavee Chukitkasem, head of research at Kasikorn Securities Pcl in Bangkok. “Other investors that see it as a positive are coming to buy again.”

Ammunition

The baht was unchanged at 34.88 per dollar. Two-year government bonds, which have lost 86 basis points since the central bank last lowered borrowing costs, may extend gains on the prospect of more rate cuts, according to DBS Holdings Ltd. Bond yields move inversely to price.

“We still have lots of ammunition,” Duangmanee Vongpradhip, a Bank of Thailand assistant governor, told a press briefing. “Domestic demand continued to soften, both in consumption and investment, partly as a result of fragile sentiment. We can be less aggressive now as we see fiscal measures in place”

Governor Tarisa Watanagase and her six board colleagues unexpectedly reduced Bank of Thailand’s key rate by the most on record on Dec. 3, cutting it by 1 percentage point.

Bank Indonesia on Jan. 7 reduced its reference rate to 8.75 percent from 9.25 percent. Taiwan’s central bank cut borrowing costs last week after an unprecedented decline in exports, and South Korea trimmed its repurchase rate on Jan. 9 to the lowest ever to bolster domestic demand.

Slowing Inflation

Slower inflation gave Thailand’s central bank scope to lower borrowing costs. The pace of consumer-price gains fell by the most in almost nine years in December, when inflation cooled to 0.4 percent from a year earlier. Exports, which make up 70 percent of the economy, slid in November from a year earlier for the first time since March 2002, sinking 18 percent. Tourist arrivals tumbled 22 percent, the most since after the December 2004 tsunami.

Gross domestic product may shrink this quarter and may have contracted in the previous three months, with this year’s growth likely to be the slowest since a recession in 1998, according to the government.

“Fiscal stimulus is on the way but the soonest for the implementation could be in the second quarter,” said Usara Wilaipich, an economist at Standard Chartered Bank Plc in Bangkok who predicted today’s reduction. “In the mean time there is a need for monetary policy to take more of a role to help support the economy.”

Prime Minister Abhisit’s government, the fourth in a year, will implement a 300 billion baht ($8.6 billion) stimulus package later this month to boost domestic demand and purchasing power, he said Jan. 9. The amount matches tourist revenue lost from an eight-day airport seizure that ended early last month.

Business sentiment is at a record low after the global recession sapped exports and six months of political protests in Bangkok that culminated in the airport seizures.

Source: Bloomberg - 14 January 2009

[ray08]

In Oz, when the reserve bank drops interest rates ,the major banks react fast and also drop there rates, i am finding this is not the case in Thailand , our business borrowing costs have still not dropped since last interest rate reduction , i bank with Kasiskornbank , has anyone else noticed the same ?

[Jai Dee]

MPC axes policy rate by 75bps

The Monetary Policy Committee on Wednesday axed the policy rate sharply by 75 basis points to 2 per cent, as Thailand needs further relaxation in monetary policy to aid the contracting economy.

The move followed a 1 percentage point cut in December.

"The MPC considers that the monetary policy could be further relaxed to support the economic recovery..., when it would take some time before fiscal measures would show their effectiveness," said Bank of Thailand Assistant Governor Duangmanee Wongprateep. She also noted that at 2 per cent, the rate could be cut further.

She noted that Thai economy has suffered from export contraction as a result of the global crisis, as well as the slowing consumption and investment. There are growing risks on economic expansion.

Economists had anticipated a 50-100 basis points cut, as Thai economy is projected to grow only 0-5-2.5 per cent in 2009, the lowest in 10 years, without any additional monetary and fiscal measures. Economic growth in 2008 was projected at 4 per cent.

Source: The Nation - 14 January 2009

[Naam]

Thai Baht not reacting!

[cclub75]

In Oz, when the reserve bank drops interest rates ,the major banks react fast and also drop there rates, i am finding this is not the case in Thailand , our business borrowing costs have still not dropped since last interest rate reduction , i bank with Kasiskornbank , has anyone else noticed the same ?

Indeed.

"thai interest rate structure is abnormal"

http://thaicrisis.wordpress.com/2009/01/13...re-is-abnormal/

[Khun Jean]

If the BOT is going to copy the USA then things might get nasty.

The problem is not here so why lower interest rates? Ah yeah exports..... In the great scheme of things that is not what is important now. What is it, a bubble sale?

More people going into debt because lower rates?

The USA should raise their interest rates, not lower it. It does not help at all, actually it makes things worse later.

Better to take the pain now.

[12DrinkMore]

"thai interest rate structure is abnormal"

http://thaicrisis.wordpress.com/2009/01/13...re-is-abnormal/

Abnormal?

The difference between lending and borrowing is certainly large in comparison with the Western banks. But, on the other hand, the Thais deliver profit to the owners, and remain, as far as I can see solid.

Unless anybody can provide any material to the contrary, I feel a lot more confident in the ability of the Thai banks to stay in business with this model rather than the bailed out banks in the West which, possibly because they felt they weren't making enough profit on traditional business, launched themselves into the fantasy world of financial "instruments".

Heard any Thai banks screaming for massive bailouts?

And the service I get from Thai banks is wonderful. Doors get opened, smiles and "wais", even an apology from the bank manager saying that the interest rate had been reduced. They even fill in the forms for me, in the UK if you haven't filled in the form you are are disdainfully turned away.

[kwang]

12:45pm tonight ECB desicion. What will happen to EUR/usd?

[Khun Jean]

It will be monkey sees monkey do.

ECB rates lower probably to 2%, more money to 'stimulate'.

Dollar getting relatively stronger for a while.

[kwang]

Agree with you. My customer short at 1.3163 last night, was so happy after the announcement.

It will be monkey sees monkey do.

ECB rates lower probably to 2%, more money to 'stimulate'.

Dollar getting relatively stronger for a while.

[quiksilva]

Yes I noticed the same but its seems that we are not the only ones to have noticed:-

Korn urged narrower interest spread

By The Nation

Korn urged narrower interest spread

Finance Minister Korn Chatikavanij urged financial institutions to maintain deposit and lending spreads at a fair level, for the survival of all.

He said at Post Forum on Thursday that though the Monetary Policy Committee reduced the policy rate to 2 per cent, the rate discrepancy is still large.

"The ministry can't intervene the market. But for the survival of all, banks should consider lowering their clients' financial cost. If the clients can thrive, the non-performing loans would not rise," he said.

http://www.nationmultimedia.com/worldhotne...interest-spread