Thai Turmoil Bruising Economy Spurs Pressure for Second Rate Cut

January 17, 2014 Leave a comment

Thai Turmoil Bruising Economy Spurs Pressure for Second Rate Cut

Thailand probably will cut its benchmark interest rate for a second straight meeting next week as protests to oust Prime Minister Yingluck Shinawatra’s government crimp economic growth.The Bank of Thailand will cut its one-day bond repurchase rate by a quarter of a percentage point to 2 percent in a decision due Jan. 22, according to seven of eight economists in a Bloomberg News survey. The finance ministry yesterday lowered its 2014 growth forecast for the second time in a month, to 3.1 percent from 4 percent.

Yingluck dissolved parliament in December and has spent weeks resisting anti-government protesters who want to remove her and the influence of her brother, Thaksin. The turmoil has hurt the economy and currency, and any delay in setting up a new government will dent investment, Finance Minister Kittiratt Na-Ranong said yesterday. The country has at least 2 trillion baht ($61 billion) in infrastructure spending planned.

“Monetary policy needs to do the job of supporting the economy because the fiscal side is paralyzed now,” said Kampon Adireksombat, a senior economist at Tisco Securities Co. in Bangkok. “We still need to fix the political problem” because a rate cut won’t stop the protests or boost growth, Kampon said.

The baht has weakened more than 2 percent in the past month, among the worst performers in the region. It traded at 32.793 a dollar as of 5:59 p.m. in Bangkok yesterday.

Borrowing Costs

The central bank on Nov. 27 unexpectedly cut borrowing costs by a quarter of a percentage point after the economy expanded a less-than-estimated 1.3 percent in the third quarter from the previous three months.

Credit Suisse Group AG and Goldman Sachs Group Inc. have also lowered their 2014 Thai growth forecasts this month, and Moody’s Investors Service said yesterday political protests will weigh on the nation’s expansion.

Protest leader Suthep Thaugsuban, a former member of the opposition Democrat Party, has said rallies will continue until Yingluck steps aside and an unelected council is installed in her place. The Election Commission has urged the government to defer the vote from February until April or May.

Passengers through Bangkok’s Suvarnabhumi International declined to 129,000 a day on Jan. 14 from a daily average of 152,000 during Jan. 1-12, according to Airports of Thailand. The number of flights dropped 6.9 percent, as Singapore Airlines Ltd., Cathay Pacific Airways Ltd., China Airlines Ltd. cut back.

Inflation (THCPIYOY) quickened to 1.67 percent in December, and Standard & Poor’s said last month the nation faces the risk of increased household debt, which the central bank noted in November was hurting consumption of non-essential goods, according to the minutes of the policy meeting.

“Inflation is set to pick up in the second quarter and, more importantly, excessive household leverage remains an underlying threat,” Tieying Ma, an economist at DBS Group Holdings Ltd. in Singapore, wrote in a research note this week. “The BOT will continue to watch developments on the political front very closely.”

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net; Michael Munoz in Hong Kong at mjmunoz@bloomberg.net

Filed under Macro Trends

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