Central Bank of Thailand Officials Cut Key Interest Rate for First Time since March 2014

March 11, 2015

The decision to cut the interest rate to 1.75% from 2.0% was finely balanced.  The Monetary Policy Committee’s released statement devoted a lengthy paragraph to explaining the different views of the four-member majority and three-member minority.

In the policy deliberation, the committee judged that the outlook of the Thai economic recovery is weaker than previously assessed. Fiscal stimulus will take time to materialize, while headline inflation is projected to remain low for a certain period of time. Against this backdrop, four members judged that monetary policy should be eased further to provide more support to economic recovery, and help shore up private sector’s confidence. Nevertheless, three members deemed the current policy rate as still being sufficiently supportive of economic recovery, while the policy space should be preserved as a shock absorber, to be used when more necessary and when policy transmission is more effective. Fiscal stimulus, especially the implementation of planned public investment, should be a key growth driver at this juncture.

Six previous 25-basis point rate reduction were implemented in November 2011, January and November of 2012, May and November of 2013, and March 2014.  Previously, there had been nine interest rate hikes between July 2010 and August 2011, all by 25 basis points and starting from a base of 1.25%.  The new rate level of 1.75% will be just 50 basis points above the 2010-11 low and only half as much as the peak in 3Q11.

Thai GDP expanded 2.2% between the final quarters of 2013 and 2014, while consumer prices in February were 0.5% lower than a year earlier.  The current account is running a surplus equal to about 2.5% of GDP.  The Thai baht, whose devaluation in mid-1997 triggered the Asian debt crisis, is little changed against the dollar from its level of a year ago.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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