By Nopparat Chaichalearmmongkol
BANGKOK--Thailand's faltering economy pushed the central bank to
unexpectedly cut its policy rate on Wednesday, as poor exports and
slower-than-predicted economic recovery continued to exact a toll
on business.
The Bank of Thailand's monetary policy committee members voted
5-2 to cut the benchmark interest rate by 0.25 percentage point to
1.5%, citing slow economic recovery despite higher government
spending and a sunnier outlook for the tourism sector.
The latest rate cut also aimed to weaken the Thai baht to lift
exports, which account for roughly two-thirds of Thailand's gross
domestic product, while helping boost domestic spending.
Weiwen Ng from ANZ Research said that the interest rate policy,
with an element of surprise announcement, "is perhaps the strongest
instrument the BOT can rely on in tempering the strong baht, which
is out of step with the sluggish economy."
The baht has strengthened around 1.0% against the U.S. dollar
since the beginning of the year. Exports contracted more than 4% in
the first quarter of this year amid slow global growth, higher
risks from an economic slowdown in China and a drop in imports by
major trading partners.
"I think this [rate cut] will only have a short-term impact on
the baht as its movement should be driven by external factors, such
as the Fed, more than the interest rate policy," said Thammarat
Kittisiripat, an economist at TMB Analytics in Bangkok.
Other countries in the region have lowered rates this year. But
the market didn't expect another cut from Thailand this time after
a surprise 0.25 percentage-point cut in March, betting the central
bank wouldn't want to spark even greater household borrowing.
Thailand's household debt stood at 89.5% of GDP at the end of
2014--one of the highest in the world, compared with the country's
income level.
Krystal Tan from Capital Economics said in a research note that,
in addition to weak growth, 'negative inflation' and government
pressure contributed to the central bank's decision in favor of
back-to-back easing of Thailand's monetary policy.
"The [monetary policy committee's] statement was notably more
dovish both in its concerns over the external outlook--explicitly
referring to the negative impact of recent baht strength on exports
for the first time--as well as on inflation, where reference was
made to the drag from weak domestic demand, not just oil prices,"
said Barclays.
Thailand has recorded three consecutive months of
disinflation--a decrease in the rate of inflation--since January,
with the headline consumer-price index falling 0.6% on-year in
March when core inflation also softened to 1.3% year-over-year.
Even after the bank's March rate cut, the military-appointed
government, which took office a few months after a military coup
last May, urged the central bank to lower its policy rate by at
least another 25 basis points to lift exports and strengthen the
economy.
After the latest rate cut on Wednesday, the baht might weaken by
around two-thirds of a percent against the dollar when compared
with its closing value on Tuesday, but the country still faces
other headwinds.
Thailand's shipments of major industrial goods, particularly
computers and parts, have been performing poorly, while prices of
such key agricultural items as rubber remain low.
Private investment and consumption were also very downbeat in
the first two months of the year, despite the government's steps to
speed up spending and its announcement of billion-dollar
infrastructure development projects.
Write to Nopparat Chaichalearmmongkol at
nopparat.chaichalearmmongkol@wsj.com
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