A Shift of Monetary Gears By the Bank of Thailand

November 30, 2011

The one-day RP key central bank benchmark rate in Thailand has been cut by 25 basis points to 3.25% in a 5-2 vote with two policymakers who favored a reduction of 50 basis points.  Officials consider policy “accommodative” but reacted to evidence of a greater-than-previously-expected drag on growth from Thailand’s severe floods.  Another headwind depressing growth comes from the euro debt crisis and related darker global economic outlook. 

This is the first easing since April 2009.  After a cyclical low maintained until a 25-bp rate hike in July 2010, eight more increases of 25 basis points each were made in August 2010, December 2010, and January, March, April, June, July and August of this year.  The previous policy meeting on October 19 had broken the streak of increases with a decision to leave the key rate at 3.5%.  That decision included a sole dissenter favoring a 25-bp cut, and analysts were prepared for today’s news especially after news of a 38.9% monthly plunge in factory production this month.  The Bank of Thailand’s statement today speaks of persistent inflation pressure but opines that such should be curtailed in the future by slower economic growth.  The statement promises to “remain vigilant in monitoring developments in the global economy as well as progress on domestic restoration efforts and stands ready to take appropriate policy actions” if needed.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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