ASEAN KEY DESTINATIONS
Thai economic growth slows
The surprising weakness raises questions over how long the Bank of Thailand will continue to tighten policy, especially as the global economy is sputtering and Thailand’s two-week-old government is putting pressure on the central bank to hold down rates.
“The data could see the newly elected government pile pressure on the BOT to rethink its aggressive policy approach,” said Radhika Rao, an economist at Forecast in Singapore.
The economy contracted by 0.2 percent in the second quarter from the first, worse than the modest 0.5 percent growth expected by economists, reflecting the impact of Japan’s earthquake in March, which caused supply chain disruptions.
Prime Minister Yingluck Shinawatra, elected on a pro-growth, populist programme, outlined her policy to parliament this week. Ministers have already called on the central bank to help industry by cutting interest rates. The latest data could buttress their argument.
However, the Bank of Thailand may be more focused on the inflationary impact of the government’s high spending and the big increase in the minimum wage it has promised for January. It has raised its benchmark interest rate eight times to 3.25 percent since July 2010 to combat inflation.
Most economists expect another quarter-point increase at the next meeting on Wednesday. Opinion is divided over whether the Bank of Thailand will pause after that meeting.
“External demand may remain subdued in coming months, but domestic growth will offset it. Generally we do not see the Bank of Thailand pausing in August, but risks have risen,” said Rahul Bajoria, an economist at Barclays Capital in Singapore.
Annual core inflation in Thailand was 2.59 percent in July, moving towards the top end of the central bank’s target range of 0.5 to 3.0 percent, which guides monetary policy. Ministers have suggested the range could be altered to give the central bank scope to hold down interest rates.
From a year earlier, Thailand’s economy grew 2.6 percent, below economists’ forecast of 3.6 percent and the previous quarter’s revised 3.2 percent.
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