More rate cuts won't help economy, BoT's Paiboon says

More rate cuts won't help economy, BoT's Paiboon says

Thailand’s monetary policy is “highly accommodative” and a further reduction in interest rates would do little to boost economic growth, the central bank’s deputy governor Paiboon Kittisrikangwan said Thursday.

The Bank of Thailand unexpectedly cut its benchmark interest rate last month for a second straight meeting, after the Finance Ministry lowered its forecast for gross domestic product growth this year to 3.7%. The "full impact" of those cuts hasn't yet been felt, Mr Paiboon said in an interview.

"Given already low interest rates, any benefits from further cuts would be marginal," Mr Paiboon said at his office in Bangkok. "The efficacy of a further cut will be more and more limited, and the committee would weigh very, very carefully that cost-benefit of further rate decisions."

The Bank of Thailand is among about 30 central banks worldwide that have provided monetary stimulus this year ahead of an anticipated increase in interest rates by the US Federal Reserve. The Thai monetary authority may lower its GDP growth forecast for this year when it meets June 10, assistant governor Mathee Supapongse said Wednesday.

"Further rate cuts will not have much impact on the economy as rates are so low already," said Toru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc in Tokyo. "They may at least want to see the effect from the last rate cuts and may pause in June."

The baht gained 0.2% to 33.73 against the US dollar as of 1.44pm. The benchmark stock index slipped 0.4%.

Bank of Thailand deputy governor Paiboon Kittisrikangwan (Bloomberg photo)

Quite satisfied

Mr Paiboon, who is one of seven monetary policy committee members, said the central bank is "quite satisfied" with the recent weakening of the baht. It has declined about 4% against the US dollar in the past three months, the biggest loser among major Asian currencies.

The economy expanded at its weakest pace in three years in 2014 and has struggled to recover. Exports fell for a fourth month in April, while industrial production tumbled 5.34% from a year earlier, data showed Thursday. The index has now dropped every month except one since March 2013, according to data compiled by Bloomberg, based on previous figures.

Prime Minister Prayut Chan-o-cha, who seized power in a military coup a year ago, is accelerating spending to bolster the economy. Consumer prices declined for a fourth month in April, the longest period of deflation since 2009, when the benchmark rate was at 1.25%. It is at 1.5% now.

In the minutes of its April 29 meeting, the central bank said that a more accommodative monetary policy "should help reduce funding costs of households and businesses, and also contribute to exchange rate adjustments toward a level more conducive to economic recovery."


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