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January 29, 2009

Thai central bank to continue ‘accommodative’ policy to boost economy
Thailand's central bank said on Wednesday it would continue with an "accommodative" monetary policy after two hefty interest rate cuts aimed at reviving a sluggish economy.

Reuters quoted Bank of Thailand (BoT) Governor Tarisa Watanagase as saying in her annual policy speech the bank would also ensure a stable baht to keep the country's flagging exports competitive.

"The central bank is ready to continue its easing monetary policy to support the economy because inflation has fallen sharply," she said in a speech that offered little new insight into the bank's outlook for 2009.

Inflation fell to a six-year low of 0.4 percent in December, allowing room for further rate reductions after the bank cut its policy rate by a combined 175 basis points to 2.0 percent in January and December.

The bank expects annual headline inflation to average between a negative 1.5 percent to positive 0.5 percent this year after 5.5 percent in 2008.

Last week the central bank cut its 2009 economic growth forecast to a decade low of 0-2 percent from 3.8-5.0 percent seen in October, and against 3.6 percent in 2008, due to falling exports which generate more than 60 percent of GDP.

"The economy this year is likely to grow, not contract like other countries," Tarisa said, noting favourable factors such as lower oil prices and a government stimulus plan.

Finance Minister Korn Chatikavanij has said the government's 300 billion baht stimulus plan, which includes tax breaks, cash handouts and farm price supports, will ensure economic growth of 2 percent this year.

Tarisa said the baht, which has been less volatile than other currencies in the current financial crisis, was still competitive for exports.

"The baht almost stands still and it is not a problem for doing business. Some other currencies are weaker or stronger than us. We should not make it weaker," she said.

The baht was trading around 34.84 to the dollar on Wednesday, little changed from 34.88 at the end of 2008.

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