BANGKOK—The Bank of Thailand cut its policy interest rate by a quarter of a percentage point in a surprise move Wednesday, making it the latest Asian central bank to ease policy as weakening demand from the West and China hits the region's export-oriented economies.
The Thai central bank follows its counterparts in South Korea and Australia, which have also cut rates in recent weeks.
Analysts said the bank will likely take time to evaluate the effect of Wednesday's move, and the bank itself said it isn't the start of a protracted rate-cutting cycle.
"I consider this cut as the BOT's pre-emptive move to cope with increasing external headwinds," said Thanomsri Fongarunrung, an economist at Phatra Securities.
The central bank's Monetary Policy Committee lowered the one-day repurchase rate to 2.75%, its third cut in the past year but the first since January.
The moves have been aimed at stimulating the economy after massive floods reduced Thailand's economic growth to just 0.1% last year. Five of seven committee members voted to cut, while two voted to hold.
Only three of 12 economists surveyed by Dow Jones Newswires had correctly predicted the outcome, while the rest were expecting the bank to stay on hold.
"The easing monetary stance is meant to cope with escalating risks" from the global economic slowdown, BOT Assistant Gov.Paiboon Kittisrikangwan told a news conference.
"Going forward, the impact from weak exports will eventually weigh on income, consumption, and investment... Global economic risks could reduce [Thailand's] economic momentum to a level that may not be sufficient to sustain growth."
Government figures, including Finance Minister Kittiratt Na-Ranong, have called in recent months for the BOT to cut rates to stimulate the economy. In response to a question at the news conference, however, Mr. Paiboon denied that the bank had caved to government pressure.
Weak global demand has weighed on Asian economies like Thailand's that depend heavily on exports, with the probem aggravated by slowing growth in China.
The statement accompanying the BOT's decision also cited fiscal risks in the U.S. and the fact that local inflation has been well-contained, giving the bank breathing room to cut.
The MPC expects the global economy to gradually improve next year, but still with a substantial degree of uncertainty.
Domestic spending and investment continue to be robust, even as flood-related expenditure has tapered off.
The central bank also noted that credit growth remains high and must be carefully monitored.
The committee on Wednesday revised down its forecasts for export growth this year and economic growth next year.
Details of the revisions will be released with the quarterly inflation report on Oct. 26, Mr. Paiboon said.
The committee's MPC will next meet Nov. 28, its last scheduled meeting of the year. Standard Chartered expects the BOT to cut rates by another quarter of a percentage point in the first half of 2013 amid weak global conditions.
Likewise, Capital Economics said in a research note that it thinks "persistent global weakness will prompt the central bank to loosen its policy settings further," predicting another 0.25 percentage-point cut by mid-2013.
wsj.com
The Thai central bank follows its counterparts in South Korea and Australia, which have also cut rates in recent weeks.
Analysts said the bank will likely take time to evaluate the effect of Wednesday's move, and the bank itself said it isn't the start of a protracted rate-cutting cycle.
"I consider this cut as the BOT's pre-emptive move to cope with increasing external headwinds," said Thanomsri Fongarunrung, an economist at Phatra Securities.
The central bank's Monetary Policy Committee lowered the one-day repurchase rate to 2.75%, its third cut in the past year but the first since January.
The moves have been aimed at stimulating the economy after massive floods reduced Thailand's economic growth to just 0.1% last year. Five of seven committee members voted to cut, while two voted to hold.
Only three of 12 economists surveyed by Dow Jones Newswires had correctly predicted the outcome, while the rest were expecting the bank to stay on hold.
"The easing monetary stance is meant to cope with escalating risks" from the global economic slowdown, BOT Assistant Gov.Paiboon Kittisrikangwan told a news conference.
"Going forward, the impact from weak exports will eventually weigh on income, consumption, and investment... Global economic risks could reduce [Thailand's] economic momentum to a level that may not be sufficient to sustain growth."
Government figures, including Finance Minister Kittiratt Na-Ranong, have called in recent months for the BOT to cut rates to stimulate the economy. In response to a question at the news conference, however, Mr. Paiboon denied that the bank had caved to government pressure.
Weak global demand has weighed on Asian economies like Thailand's that depend heavily on exports, with the probem aggravated by slowing growth in China.
The statement accompanying the BOT's decision also cited fiscal risks in the U.S. and the fact that local inflation has been well-contained, giving the bank breathing room to cut.
The MPC expects the global economy to gradually improve next year, but still with a substantial degree of uncertainty.
Domestic spending and investment continue to be robust, even as flood-related expenditure has tapered off.
The central bank also noted that credit growth remains high and must be carefully monitored.
The committee on Wednesday revised down its forecasts for export growth this year and economic growth next year.
Details of the revisions will be released with the quarterly inflation report on Oct. 26, Mr. Paiboon said.
The committee's MPC will next meet Nov. 28, its last scheduled meeting of the year. Standard Chartered expects the BOT to cut rates by another quarter of a percentage point in the first half of 2013 amid weak global conditions.
Likewise, Capital Economics said in a research note that it thinks "persistent global weakness will prompt the central bank to loosen its policy settings further," predicting another 0.25 percentage-point cut by mid-2013.
wsj.com
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