Bank of Thailand Retained a 1.25% Benchmark Rate

April 21, 2010

Until domestic political unrest erupted earlier this month in Thailand, the central bank there had appeared set to lift its record low policy interest rate this week.  A hawkish statement had been released following the prior meeting on March 11th that observed a reduced downside risk to growth and declared that such “has significantly lessened the need for exceptionally accommodative monetary policy at present.”  Officials went on to warn that they “will consider adjusting the policy interest rate to more normal levels in the period ahead.”  Today’s new statement from Thai monetary officials explains that risks to business and consumer confidence, tourist inflows, and private domestic demand posed by the political situation trumped robust growth, financial stability, and a likely rise of core inflation in their decision this month.  Real GDP leaped 15.3% annualized in the final quarter of 2009 and showed growth of 5.8% from 4Q08, while industrial production is 15.3% greater than a year ago.  Overall CPI inflation exceeds 3%, but core is much lower, although likely to trend higher.  Bank of Thailand officials meet next on June 2.  Economic considerations point to a 25-basis point increase then, but all bets will be off if significant political risks persist.

During the world recession, the Bank of Thailand implemented four rate reduction of descending magnitude starting with 100 basis points in December 2008 followed by 75 bps in January 2009, 50 bps in February 2009 and 25 bps in March 2009.  The policy interest rate was cut by 250 bps in all from 3.75% to 1.25%.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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