Sign up | Log in



Home  >>   Daily News  >>   Thailand News  >>   Economy  >>   Bank of Thailand opts for rate cut to shore up economy
NEWS UPDATES Asean Affairs    23 October 2012 

Bank of Thailand opts for rate cut to shore up economy


The Bank of Thailand's (BOT) Monetary Policy Committee (MPC) has turned its focus towards economic growth, rather than inflation, as reflected in the surprise rate cut that only points to a gloomier outlook for the world economy.

The policy rate cut - the first since January - by 25 basis points to 2.75 per cent took many economists by surprise, as they believed the growth in domestic consumption could counter the slump in exports to sustain economic growth.

Moody's Analytics said in a note on Monday that as inflation is contained, the central bank could focus on shoring up growth. It expected the policy rate to remain on hold at 3 per cent for the rest of 2012, "as the BOT weighs the risks from the soft global economy against steady domestic demand".

The decision, supported by five of the seven MPC members, was made even though inflation accelerated to a six-month high of 3.38 per cent in September. However, it coincided with the International Monetary Fund's lowering last week of the global growth forecast to 3.3 per cent in 2012 and 3.6 per cent in 2013, down from the July prediction of 3.5 per cent this year and 3.9 per cent next year.

New estimates suggest a 15-per-cent chance of recession in the United States next year, 25 per cent in Japan and above 80 per cent in the euro area. The growth forecast for developing Asia's gross domestic product has also been lowered to 6.7 per cent from 7.1 per cent.

Global economists see great risks to the world economy in three areas: resolution of the eurozone crisis, the direction of the US economy and fiscal adjustment, and the limited possibility of a hard landing in China. Beijing will announce its third-quarter economic figures today, and Moody's Analytics foresees the continuation of downward pressure, as stimulus measures would start to show results only in the fourth quarter.

"Inflation accelerated to a six-month high of 3.38 per cent in September. The priority of the Monetary Policy Committee has shifted towards growth rather than inflation," Kobsidthi Silpachai, head of capital markets research at Kasikornbank, told Bloomberg.

"The committee has probably considered some guidance and some concerns expressed by the government, and the International Monetary Fund downgrade last week of its global expansion forecast might have helped tilt the balance in favour of [the MPC's] decision."

The minutes of yesterday's MPC meeting will be released on October 26. It will convene on November 28 for the last time this year.

At the two previous meetings, two of the seven members showed starkly divided opinions - calling for a rate cut in light of falling exports. The split was seen for the first time in months and occurred after Virabongsa Ramangkura, adviser to Prime Minister Yingluck Shinawatra, started his job as Bank of Thailand's chairman.

Virabongsa has been adamant that the rate should be cut for two reasons: to boost exports, which generate 70 per cent of GDP, so as to achieve 5-per-cent economic growth; and to slow down capital inflows, which otherwise would require more stabilisation in the foreign-exchange market and result in more losses for the central bank.

BOT Assistant Governor Paiboon Kittisrikangwan, as secretary of the MPC, brushed off the speculation of political intervention, though. He said in a briefing after the MPC meeting: "Making rate decisions is not easy and the move today wasn't a result of political interference. It's not clearly black and white."

Based on the 7-per-cent export-growth forecast, the BOT expects Thailand to register GDP growth of 5.7 per cent this year and 5 per cent in 2013. Exports shrank by 6.95 per cent year on year in August. In the first eight months, exports were off 1.31 per cent.

While inflows may slow, leading to baht appreciation after the rate cut, it remains uncertain when actual interest rates will be cut. Chongrak Rattanapian, executive vice president of Kasikornbank, said a bank meeting would take place in the next couple of days. He admitted that it remained uncertain whether banks would cut lending and deposit rates, given fierce competition for deposits as well as massive loan growth.

In the statement released after the meeting yesterday, the MPC said the overall global economic outlook remained weak, although further monetary-policy easing in major economies helped support global financial-market sentiment and the latest indicators pointed towards some improvements in the US housing and labour markets.

"The weak global demand has weighed more heavily on China and regional economies than expected. Going forward, a more moderate growth outlook for China's economy could dampen Asian exports further. At the same time, fiscal risks in the US and practical implementation challenges to the resolution of the euro-debt crisis pose significant risks to the global economic outlook," the statement said.

It said the Thai economy continued to expand in the third quarter, although the impact of softer global demand for exports and export production had become more apparent. Domestic spending and private investment continued to be robust.

Expecting an improvement in the global economy next year, the MPC said uncertainties could hamper exports further.

The decision yesterday was reached with risk of higher inflation contained, to shore up domestic demand in the period ahead and ward off potential negative impact from the global economy, which remained weak and fragile.

Reach Southeast Asia!
10- Nations, 560- Million Consumers
And $1 -Trillion Market
We are the Voice of Southeast Asia Media Kit
The only Media Dedicated to Southeast Asia Advertising Rates for Magazine
  Online Ad Rates

Comment on this Article. Send them to

Letters that do not contain full contact information cannot be published.
Letters become the property of AseanAffairs and may be republished in any format.
They typically run 150 words or less and may be edited
submit your comment in the box below

Today's  Stories    23 October 2012   Subsribe Now !
• Asean+6 to launch world's biggest free-trade market  Subcribe: Asean Affairs Global Magazine
• Chinese manufacturing relocating to Asean due to costs Asean Affairs Premium
• Bumi Plc break up showcase weak corporate governance in Indonesia
Research Reports
on Thailand 2007-2008

•Textiles and Garments Industry

•Coffee industry

•Leather and footwear industry

•Shrimp industry

• EU travelers decline prompts Indonesia to focus on Asean, Asia
• US Rice Federation fears rice dumping by Thailand
• Singapore wins as Asia's top MICE destination
• Bank of Thailand opts for rate cut to shore up economy
• Philippine companies scouting Vietnam for business  
Asean Analysis              23 October 2012
Advertise Your Brand
• Asean Analysis- October 23, 2012  
• Asean Weekly- October 13, 2012 Sponsor Our Events

Asean Stock Watch     23 October 2012 

• Asean Stock Watch- October 23, 2012

ASEAN NEWS UPDATES      Updated: 04 January 2011

 • Women Shariah scholars see gender gap closing
• Bank Indonesia may hold key rate as inflation hits 7 percent

• Bursa Malaysia to revamp business rules
• Private property prices hit new high in Singapore • Bangkok moves on mass transport
• Thai retailers are upbeat
• Rice exports likely to decline • Vietnamese PM projects 10-year socioeconomic plan


This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More






1.  Verifier

1. Verifier

For security purposes, we ask that you enter the security code that is shown in the graphic. Please enter the code exactly as it is shown in the graphic.
Your Code
Enter Code

Home | About Us | Contact Us | Special Feature | Features | News | Magazine | Events | TV | Press Release | Advertise With us

| Terms of Use | Site Map | Privacy Policy  | DISCLAIMER |

Version 5.0
Copyright © 2006-2020 TIME INTERNATIONAL MANAGEMENT ENTERPRISES CO., LTD. All rights reserved.
Bangkok, Thailand