No Policy Change From Bank of Thailand

June 2, 2010

Thailand’s policy interest rate has been at 1.25% since a 25-basis point cut in April 2009, which followed reductions of 100 bps in December 2008, 75 bps in January 2009 and 50 bps in February 2009.  A rate level this accommodative is not consistent with Thailand’s economic circumstances. A statement released today concedes that GDP growth in 1Q10 of 16.0% annualized and 12% from 1Q09 were stronger than officials anticipated.  Industrial production was 32.6% greater than a year earlier in March, and the jobless rate then was just 1.0%.  After central bank officials met in March, they strongly hinted that the time to begin raising rates was fast approaching.  That didn’t happen after the last meeting on April 21, when this website observed,

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.

And that’s exactly what happened, as nearly 100 people died in street protests.  Today’s statement moreover cites the European sovereign debt crisis twice as an additional reason to approach tightening cautiously.  Analysts were not expecting a rate hike today.  The new statement from the central bank gives no indication when such might happen, but with tourism being so critical to the economy, the potential downside growth risk from civil unrest is very tangible.  CPI inflation meanwhile stood at 3.0% as of April.  Thailand’s current account surplus runs around 6% of GDP, but the government deficit exceeds 3% of GDP.

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

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