BoT cuts rate to 1.5%

The Bank of Thailand cut short-term interest rates by a half of a percentage point yesterday as part of its ongoing efforts to jumpstart the economy.

The rate cut brings the one-day repurchase policy rate to 1.5% from 2%. Over the past three months, the central bank's Monetary Policy Committee (MPC) has cut rates by 2.25 percentage points in an effort to spur growth.

Siam Commercial Bank, the country's fourth-largest, became the first Thai bank to announce a rate cut in response to the MPC measure, with a 0.25 percentage point cut in lending and deposit rates that also covered savings deposits.

"The ongoing global financial crisis resulted in a marked slowdown in world economic growth with high uncertainty surrounding the economic outlook," the MPC said in a statement.

"The sharp decline in external demand adversely affected regional countries including Thailand through a marked contraction in exports. In addition, domestic demand remained weak, while the impact of measures to stimulate the economy will take some time to come into full effect."

The MPC said risks to growth continued to increase while inflation was expected to decline. Core inflation, which excludes food and energy prices, could fall below the MPC's target "during certain periods of this year".

"The MPC therefore viewed that monetary policy could be eased further to support economic recovery and to safeguard price stability going forward," the committee said.

Duangmanee Vongpradhip, a central bank assistant governor, said current forecasts of growth of zero to 2% this year could be revised downward as the global economy deteriorated.

But she rebutted a report by Moody's Economy.com that suggested Thailand was among the worst performing economies in the region, with the fourth quarter of 2008 falling at an annualised rate of 22%.

"The Thai economy should be viewed from the point that it contracted 4.3% year-on-year and 6.1% quarter-on-quarter in the fourth quarter of last year. And it was not the worst performer in the region," Mrs Duangmanee said.

She said the economy could grow on a quarter-on-quarter basis in the first quarter, although full-year figures may be negative.

But Finance Minister Korn Chatikavanij said yesterday that the first quarter could be "even worse" than the fourth quarter of 2008, as the global economy continued to deteriorate hurting Thai exports.

He said the government was focused on encouraging domestic demand to compensate for falling exports, and that the target in any case was to maintain positive growth for the year.

Mrs Duangmanee said the central bank expected increases in public spending and gains in net trade due to falling imports would help the economy pick up from the fourth quarter of 2008.

The central bank expected the economy to start recording positive year-on-year growth in the fourth quarter, she said.

"The monetary easing continues to pursue a front-loaded path. The degree in interest rate cuts this time is on par with the past two rounds in December and January," Ms Duangmanee said.

Commercial banks cut deposit rates by 130 basis points and lending rates by 75 basis points the past few months.

"We hope that the economy follows our signal and reduces interest rates to reduce business financing costs. The short-term bond rate has been lower. However, the large base of term-deposits remain a significant cost for banks," Mrs Duangmanee said.

Siam Commercial Bank, meanwhile, announced that effective tomorrow, it would cut deposit and loan rates by 25 basis points, bringing minimum loan rates to 6.25%, minimum overdraft rates to 6.5% and minimum retail rates to 6.75%.

Savings deposit rates were cut to 0.5% from 0.75%, the first reduction in such rates by a Thai bank in a decade. Three-month fixed deposit rates for balances under five million baht were also cut to 0.75%, with larger balances set at 1% per year.

Other banks are expected to soon follow SCB with their own rate cuts.

Mrs Duangmanee said the one-day policy rate, in real terms, actually stood at 1.9%, as inflation rates were expected to turn negative.

She said core inflation could drop below the MPC's target of 0.5% to 3% this year, although this was part of government efforts to reduce expenses for households.