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Thai central banks see lower rates if economy slows

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October 25, 2008

Thai central banks see lower rates if economy slows
Thai interest rates could be cut if the economy slowed more than expected because of international financial turmoil, Reuters quoted Bank of Thailand Governor Tarisa Watanagase as saying Friday.

However, the Thai economy is not expected to fall into recession in 2009, she said.

"On interest rates, if economic data came out at the lower ends of our forecast ranges, there is room for our monetary policy to be adjusted to accommodate growth, and for a possible rate cut," the governor said.

"But we must first wait for clearer and more convincing data," she told a news conference in the northern city of Chiang Mai.

The central bank's Monetary Policy Committee, next due to meet on December 3, left its main interest rate at 3.75 percent this month, but a sharp fall in inflation has given it room to focus on the risks to growth from the global credit crisis.

Last week the central bank cut its gross domestic product growth forecast for 2008 to 4.3-5.0 percent from 4.8-5.8 percent and said that growth would probably ease further to 3.8-5.0 percent in 2009.

It cut its 2008 inflation forecast to 6.0-6.5 percent from the 7.5-8.8 percent expected in July.

Inflation hit a 10-year high of 9.2 percent in July but fell in August and September, restrained by cheaper oil, petrol subsidies and government measures such as free public transport for the poor.

Tarisa also said the central bank would closely monitor the baht, which fell sharply against the dollar this week. It will be kept in line with other Asian currencies, she said.

The baht fell against the dollar on Friday as investors dumped Asian equities  because of the global economic downturn. It fell as far as 34.75 per dollar before recovering to around 34.68, against 34.49 late on Thursday.

Governor Tarisa said the baht was relatively stable compared with other Asian currencies.

"Ours is not that volatile relative to other currencies, having weakened only 2 to 3 percent so far this year. The extent of currency weakness reflects the confidence of outsiders in the economy of a country," she said.

The baht has fallen about 2.9 percent against the dollar this year, against losses of around 16 percent in the Philippine peso, 21 percent in the Indian rupee and 35 percent in the Korean won.

Separately, Finance Minister Suchart Thada-Thamrongvech said in Bangkok that the government might extend a full guarantee on bank deposits, which it had planned to phase out.

Deposits are guaranteed 100 percent but that guarantee is being scaled down under a five-year plan from August 2008.

The full guarantee remains in place for one year from that date, but Suchart said an extension for three more years could be put to the cabinet.

Other countries have announced similar moves to reassure savers worried about the financial crisis. However, Governor Tarisa repeated on Friday that the banking system in Thailand was not suffering liquidity problems.

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