Last updated: November 27, 2013 5:26 pm

Thailand cuts rates amid flagging growth

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Thailand made an unexpected 0.25 percentage point cut to its main interest rate on Wednesday, in an effort to boost lending and investment amid flagging economic growth and growing protests aimed at ousting the government.

Demonstrators massed in the streets of Bangkok for the fourth day running, as their leaders vowed to escalate this week’s takeover of the finance ministry into a nationwide campaign to occupy official buildings and topple prime minister Yingluck Shinawatra.

The so-far peaceful protests have had little apparent impact on business but they have stoked international fears that Thailand – while less financially vulnerable than some other Asian emerging markets – is weakening economically as investments and consumer spending are put on hold.

“While the central bank’s decision to trim rates caught markets off guard, it speaks volumes about Thai policy makers’ increasing concerns about the collapse in growth, exacerbated by mounting political uncertainty,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy, a London-based research business. “The central bank is being forced to provide more stimulus because of the increasing political difficulties faced by the government in spurring growth through infrastructure spending.”

The Thai central bank’s monetary policy committee said it had cut its benchmark one-day bond repurchase rate from 2.5 per cent to 2.25 per cent, to counter an economic slowdown that could be “compounded by [the] ongoing political situation”. The committee said the cut, which it backed by a vote of six to one, could help boost exports and spending by government and individuals, without pushing up inflation or consumer debt.

New official figures showed the country’s trade deficit swelled to $1.77bn – more than triple forecasts – in October, underscoring how weaker-than-expected exports are eroding an economy driven in good part by its hard drives-to-automobiles manufacturing sector. The Thai baht and stock market have been volatile all week, although the currency was steady and the benchmark SET share index up 1 per cent by early Wednesday evening.

Frederic Neumann, co-head of Asian economics research for HSBC bank in Hong Kong, said the interest rate cut reflected worries that the protests have the potential to disrupt the peak tourist season and corporate investment plans.

“The Bank of Thailand thus delivered a timely shot in the arm for the economy, signalling its stance to support growth,” Mr Neumann said. “However, without a quick resolution to the political stand-off, a single rate cut is unlikely to lift spending.”

The protests that have grown 150,000 or more strong at times this week are part of an on-off 12-year-old political battle between opponents and supporters of Thaksin Shinawatra, a fugitive former prime minister who is the dominant figure in Thai politics and also Ms Yingluck’s older brother. Ms Yingluck is due to face a no-confidence vote in parliament on Thursday, although she is expected to win this thanks to her Puea Thai party’s majority in the lower house.

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