FX.co ★ Thai Central Bank Cuts Key Interest Rate Further

Thai Central Bank Cuts Key Interest Rate Further

(RTTNews) - Amid slowing inflation and political turmoil, the Thai central bank reduced key interest rate by a more-than-expected 75 basis points on Wednesday.

The Monetary Policy Committee of Bank of Thailand slashed one-day repurchase rate to 2% from 2.75% with immediate effect. Economists had expected a 50 basis point cut.

On December 3, the central bank had slashed its key interest rate by 100 basis points to 2.75%, which was the first reduction since July 2007.

The MPC viewed that monetary policy could be eased further to support the economic recovery, particularly as the economy continued to face numerous negative risks both on the domestic and external fronts, and the impact of fiscal stimulus would take some time to materialize.

Annual inflation in December had reached the weakest level in more than six years after slowing to 0.4% from 2.2% in November on oil and commodity prices.

The central bank noted that global economic slowdown and resultant contraction in demand reduced Thai exports. Domestic demand also softened further. However, domestic political situation, which began to show signs of increasing stability, should help enable the government to implement its economic stimulus measures going forward, the Bank said.

In a note, economists at DBS bank said GDP growth rates are likely to dip into negative territory in the first quarter of 2009 in year-on-year terms, further pressurizing the authority into acting to cushion the economy and support prices. Economists now see further rate cuts this quarter.

On December 1, the Fitch Ratings had revised Thailand's outlook to negative from stable considering the political turmoil. Later on, the Moody's Investors Service had downgraded the outlook on Thailand's Baa1 foreign and local currency government rating to negative. The Moody's said the action was prompted by the adverse effect the heightened political turmoil was having on the economy, which could undermine the government's credit worthiness, if not checked.

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