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Cut in policy rate likely

SEETALAVAJIT SABAYJAI

SUCHEERA PINIJPARAKARN

THE NATION

Economists and bankers welcomed relaxation in monetary policy by the Bank of Thailand, saying a policy rate cut would help revive the flood-hit economy.

BOT Governor Prasarn Trairatvorakul, in his interview to Reuters news agency, said the slowdown posed a greater risk to the economy than inflation. Damage from the worst floods in nearly seven decades is estimated at Bt100 billion to Bt200 billion, and the central bank may revise down this year's economic growth forecast below 2.6 per cent.

There is every likelihood that the Monetary Policy Committee may cut the policy rate at its November 30 meeting. After seven increases of 25 basis points each, the MPC paused on October 19. The policy rate is now 3.50 per cent. Brazil and Indonesia recently cut their rates on fears of a global slowdown.

Somprawin Manprasert, an economist at Tisco Securities, said the rate cut could facilitate investment and demand, and soften the flood impact on gross domestic product. Tisco Securities is revising down its estimate of GDP growth for 2011.

"Now, [risk to] output loss is higher than the inflation threat as the floods were creeping into Bangkok, which also prompted a change in sentiment," Somprawin said. The easing monetary policy would help facilitate reconstruction after the floods, he said.

Kittiya Todhanakasem, senior executive vice president, Krung Thai Bank (KTB), said that a policy rate cut would help stimulate the economy in the fourth quarter.

The flooding has seriously impacted all sectors, especially retail customers who will need loans to repair their residences. A cut in the policy rate will convince people to ensure a lower financial burden, she said.

Kosit Panpiemras, executive chairman of Bangkok Bank, said the BOT may decide to keep the rate unchanged at this month's meeting.

-- The Nation 2011-11-12