Thai Central Bank May Keep Rate as Government Stimulus Kicks In

By Suttinee Yuvejwattana

July 15 (Bloomberg) -- Thailand’s central bank will probably keep its benchmark interest rate unchanged at a second straight meeting amid signs government spending has helped moderate the pace of the nation’s economic contraction.

The Bank of Thailand will hold the one-day bond repurchase rate at 1.25 percent, according to 17 of 18 economists surveyed by Bloomberg News. One economist expects a 25 basis-point cut. The central bank decision is due today at 2:30 p.m. in Bangkok.

“Government stimulus measures have picked up the slack so the pressure to respond with monetary support has eased,” said Radhika Rao, an economist at IDEAglobal Ltd. in Singapore. “We expect the rate to be left unchanged for the rest of the year.”

Thailand’s consumer confidence rose for the first time in five months in June after the seven month-old government said it would spend more than 1.4 trillion baht ($41 billion) by the end of 2012. Policy makers in the Southeast Asian nation have begun saying the economy may be past the worst after declines in exports and manufacturing stabilized.

The Central Bank of Sri Lanka this week kept its key rate unchanged as it waits to see if three reductions this year are enough to stoke an economic revival. South Korea’s central bank held borrowing costs at a record low for a fifth month on July 9 as the economy recovers, and Malaysia refrained from lowering its overnight policy rate for a second meeting on May 26.

Falling Prices

The Bank of Thailand’s interest rate of 1.25 percent is at its lowest since July 2004 after being cut by a total of 2.50 percentage points over four meetings between December and April. Consumer prices have been falling since January.

“The central bank may decide to refrain from cutting rates further for political reasons,” said Jotika Savanananda, president of Bangkok-based SCB Asset Management Co., which manages about 420 billion baht of assets. “Too low a rate will hurt pensioners and savers.”

Thailand’s government last month won parliamentary approval to borrow 800 billion baht locally to fund its three-year investment plans involving transportation, water distribution, health and education projects. That’s in addition to a 116.7 billion-baht stimulus package of training programs, cash handouts and public works.

The central bank on June 30 said economic conditions stabilized in April and May. Industrial production fell 10 percent in May, compared with a 9.7 percent decline a month earlier. Exports, which are equivalent to about 60 percent of the Thai economy, slid 26.5 percent in May, after a 25.2 percent drop in April.

Southeast Asia’s second-largest economy shrank 7.1 percent in the first quarter, a second consecutive quarterly decline that pushed the nation into recession. The contraction will lessen in subsequent quarters and growth will resume in the last three months of the year, the government predicts.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net