No Change in Thailand’s 1.25% Central Bank Rate

January 13, 2010

The Bank of Thailand released a somewhat less dovish statement but retained a 1.25% cyclically low key interest rate as had been anticipated.  The 1.25% level was reached after four cuts of descending magnitude and totaling 250 basis points: 100 bps in December 2008, 75 bps in January 2009, 50 bps in February and 25 bps last April 8th.  Thailand began to recover in 2H09, but on-year growth was still negative in 3Q because of political unrest, Thailand is not expanding as briskly as other economies in Asia, yet CPI inflation spiked to 3.5% in December from 1.9% because of energy pressures.

Unlike previous statements from the Bank of Thailand, today’s did not leave the impression of several more quarters with a 1.25% interest rate.  While a top official from the bank subsequently reiterated that the present accommodative policy is appropriate, that assertion was not in the formal statement, nor was there mention of the need for more sustained policy support.  Instead, the statement observes faster growth in Asia than other regions and predicts that tightening will begin sooner in Asia than elsewhere.  Higher Thai inflation is predicted in the period ahead due to lifted government subsidies and brisker domestic demand, not merely the rise in energy costs.  The statement talks about a continuing Thai recovery, led by demand consumer durables and exports but with lagging business investment.

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


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