Thailand Holds Key Rate on Growth Concern, Turmoil

By Suttinee Yuvejwattana and Shamim Adam

Oct. 8 (Bloomberg) -- Thailand's central bank kept its benchmark interest rate unchanged after two increases since July to bolster confidence in an economy marred by political turmoil and as a global credit crisis stifles lending and investment.

The Bank of Thailand left its one-day bond repurchase rate at a 16-month high of 3.75 percent, it said today in Bangkok. Policy makers are ``ready to act'' to buoy the economy, said Duangmanee Vongpradhip, an assistant central bank governor.

Asian central bankers are shifting their focus to boosting growth as inflation worries ease and the global financial crisis gathers speed. Thailand's growth outlook is worsening after protesters vowed to step up efforts to oust the government as violent clashes with police yesterday left at least one person dead and 400 injured.

``Political tension would definitely undermine Thailand's economic growth,'' said Charl Kengchon, a Bangkok-based economist at Kasikorn Research Co., a unit of Kasikornbank Pcl, who expected the rate decision. ``This is a serious risk but they would like to wait a little longer to cut to make a good assessment of the economic impact.''

Baht, Stocks Slide

The baht, Asia's third-worst performing currency this year, fell 0.2 percent to 34.54 per dollar at of 2:42 p.m. in Bangkok, trimming an earlier decline of as much as 0.4 percent. The currency is close to its lowest level since February 2007. Thailand's benchmark index of stocks sank 7.6 percent to its lowest level in more than five years.

Fifteen of 16 economists surveyed by Bloomberg News predicted today's decision to keep the rate unchanged, after it was raised by a total of 50 basis points in the last two meetings to anchor inflation expectations as consumer price gains reached a decade high in July.

Other central banks aren't waiting. The Reserve Bank of Australia yesterday cut its benchmark interest rate by one percentage point, the most since a recession in 1992 and said ``evidence is accumulating of a significant moderation in growth in Australia's trading partners in Asia.''

China and Taiwan have also eased the price of money to encourage spending, loans and investment amid concern that the world has entered a recession. The Hong Kong Monetary Authority said it will cut its lending rate to banks to 2.5 percent from 3.5 percent from tomorrow.

Rate Cuts Globally

The People's Bank of China last month lowered the one-year lending rate for the first time in six years. Taiwan and New Zealand have also reduced borrowing costs, while the Philippines this week ended its series of rate increases.

Global growth is slowing after the collapse and bailout of banks in the U.S. and Europe propelled the cost of borrowing in money markets to the highest ever. Central banks around the globe have injected billions of dollars into the financial system to spur lending and prevent the world from slipping into recession.

It may already be too late. Economists at JPMorgan Chase & Co. and UBS AG said the world is sliding into its first downturn since 2001.

The 15-nation euro area is teetering on the brink of a recession after contracting 0.2 percent between April and June; the Bank of Japan expects growth to remain ``sluggish'' and the U.S. may be heading for its worst downturn in at least a quarter century as the credit crisis forces employers to cut jobs and spending.

Financial `Storm'

In Thailand, central bank Governor Tarisa Watanagase has said political uncertainty is a bigger risk to the nation's growth outlook than the global financial ``storm.''

CIMB today cut its economic growth estimate for Thailand this year to 4.6 percent from 5 percent and predicted a pace of as little as 3.3 percent in 2009, citing political clashes and the worsening global outlook. The economy expanded by 4.8 percent last year.

The Finance Ministry last month said Thailand may miss this year's export-growth target as the global financial turmoil damps demand. The nation's economic growth slowed for the first time in more than a year in the second quarter as exports failed to offset cooling domestic consumption.

Political squabbling in the nation of 66 million people has pushed consumer confidence to the lowest in eight months. Thousands of mostly middle-class Bangkok residents have occupied the prime minister's office since Aug. 26 and a court forced the resignation of former Prime Minister Samak Sundaravej.

Tear Gas, Deaths

Police fired tear gas at the protesters surrounding parliament yesterday, who tried to prevent Samak's successor Somchai Wongsawat from presenting his administration's policies to lawmakers. One was killed and hundreds injured in the clashes throughout the day. Another died when a car exploded nearby. Thai Deputy Prime Minister Chavalit Yongchaiyudh resigned.

The central bank raised its interest rate by a total of 50 basis points in the last two meetings to anchor inflation expectations as consumer price gains reached a decade high in July.

Since then, inflation has cooled. The finance ministry forecast inflation will average 6.3 percent this year and will slow to between 3 percent and 4 percent next year.

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net