Thailand May Cut Key Rate as Economy Cools, Confidence Sinks

By Suttinee Yuvejwattana and Michael J. Munoz

Jan. 14 (Bloomberg) -- Thailand’s central bank will probably cut its benchmark interest rate for a second month after inflation cooled to the slowest pace in six years and anti-government protests sent confidence to a record low.

The Bank of Thailand may lower its one-day bond repurchase rate by half a percentage point to 2.25 percent, according to 13 of 19 economists in a Bloomberg News survey. The decision is due at 2:30 p.m. today in Bangkok.

Policy makers across Asia are cutting borrowing costs to help sustain growth as the global recession reduces demand for the region’s exports. Thailand’s economy may enter recession this quarter and grow at the slowest pace since 1998 this year. The nation’s fourth government in a year is boosting spending to spur expansion as exports and tourism cool.

“While the government has unveiled a stimulus package, implementation and disbursements will occur with a lag time,” said Radhika Rao, an economist at Ideaglobal Ltd. in Singapore who predicts a 50 basis-point reduction. “In the interim, the central bank will have to make up for the slack with aggressive policy easing.”

Governor Tarisa Watanagase and her six board colleagues unexpectedly lowered Bank of Thailand’s key rate by the most on record on Dec. 3, cutting it by 1 percentage point.

Indonesia, Taiwan

Bank Indonesia on Jan. 7 reduced its reference rate to 8.75 percent from 9.25 percent. Taiwan’s central bank cut borrowing costs last week after an unprecedented decline in exports, and South Korea trimmed its repurchase rate on Jan. 9 to the lowest ever to bolster domestic demand.

Slower inflation has given Thailand’s central bank scope to lower borrowing costs. Consumer prices rose 0.4 percent in December from a year earlier after oil prices fell. Exports, which make up 70 percent of the economy, slid in November from a year earlier for the first time since March 2002, sinking 18 percent. Tourist arrivals tumbled 22 percent, the most since after the December 2004 tsunami.

“With food and oil prices stabilizing fast and a nasty economic deceleration on the cards, the trend is very clearly at risk of turning deflationary,” said Carl Rajoo, an economist at Forecast Singapore Ltd. “There is abundant monetary space for the Bank of Thailand to drag down interest rates to spur the Thai economy.”

Gross domestic product may shrink this quarter and may have contracted in the last, with this year’s growth likely to be the slowest since a recession in 1998, according to the government.

Prime Minister Abhisit Vejjajiva’s four-week-old government will implement a 300 billion baht ($8.6 billion) stimulus package later this month to boost domestic demand and purchasing power, he said Jan. 9. The amount matches tourist revenue lost from an eight-day airport seizure that ended early last month.

Business sentiment is at a record low after the global recession sapped exports and six months of political protests in Bangkok that culminated in the airport seizures.

Thailand Central Bank Rate Forecasts

==========================================================
Observation Period            Jan.    Feb.   April     End
                               14      25       8    2009
==========================================================
Median                       2.25%   1.75%   1.50%   1.50%
% forecasts at Median        68.4%   63.6%   30.0%   33.3%
High                         2.25%   2.00%   2.00%   2.00%
Low                          1.75%   1.50%   1.00%   0.75%
Number of Estimates             19      11      10      12
==========================================================
ATR-Kim Eng Capital          2.25%   1.75%   1.25%   0.75%
Capital Economics Ltd.       1.75%      --      --      --
Capital Nomura Securities    1.75%   1.75%   1.50%   1.00%
CIMB Securities              2.25%      --      --      --
Citi                         2.25%   1.75%   1.50%   1.50%
Credit Suisse                2.25%      --      --      --
Forecast Singapore           2.25%   1.75%   1.75%   1.50%
HSBC                         2.25%   1.75%   1.50%   1.25%
Ideaglobal                   2.25%      --      --   1.25%
JP Morgan Chase              2.25%   1.75%   1.25%   1.00%
Macquarie Capital Securities 2.00%      --      --      --
Morgan Stanley               2.00%      --      --      --
Nomura International (HK)    2.25%      --      --      --
Phatra Securities            2.25%   1.75%      --   1.75%
Reuters IFR                  2.00%   1.50%   1.00%   1.50%
SCB Securities               2.25%   2.00%   1.75%   1.50%
Standard Chartered Bank      2.00%      --      --      --
Tisco Securities             2.25%   2.00%   1.75%   1.75%
Westpac Banking Corp         2.25%   2.00%   2.00%   2.00%
==========================================================

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net; Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net