Thai interest rates may ease further

05/05/2009 | Taimur Ahmad

The Bank of Thailand (BoT) still has room to cut interest rates to help a flagging economy after four rate reductions since December, central bank governor Tarisa Watanagase has said

The Bank of Thailand (BoT) still has room to cut interest rates to help a flagging economy after four rate reductions since December, central bank governor Tarisa Watanagase has said.
“The interest rate right now is quite low. As a consequence the deposit rate is quite low. So that’s one factor to take into account. But I’m not ruling out the possibility of further easing,” Tarisa told Emerging Markets. “The MPC will always look at the latest data.”
Tarisa noted that so far monetary policy has been “accommodative.” Since December, the central bank has cut its key policy rate by a combined 250 basis points to a six-year low of 1.25%, to help an economy suffering from the effects of the global economic crisis and political unrest at home. The BoT’s next rate-setting meeting is on May 20.
Tarisa forecast an economic contraction of between 1.5% and 3.5% of GDP for 2009, noting that the “second round impacts” of the economic crisis on trade are “quite a challenge.”
The central bank on Thursday said industrial output, exports and imports plunged in March. But Tarisa said a “good combination” of monetary and fiscal policies will help ease the downturn.
The central bank has eased monetary policy in tandem with efforts to stimulate the economy by the government in response to a collapse in exports, which are equivalent to more than 60% of gross domestic product.
The governor rejected widespread fears that deflation may take hold in Thailand. “We have negative inflation rather than deflation because of the sharp decline in commodity prices, especially oil prices.”
She noted that against this backdrop, declining inflation is “almost inevitable.” She added: “We are not seeing a general decline in the prices of other services or products, so the risk of deflation is low.” The BoT’s forecast for the change in prices over the whole of 2009 ranges between a 1.5% drop and a 0.5% rise.
Tarisa also warned that if the political unrest is prolonged, it will have a negative affect on the economy and performance could be lower than the projection. “The political situation might add more uncertainty to the economic picture, and it might erode confidence more than expected – and of course that might have some consequences on the output side,” she said.
Concerns about political stability in Thailand have risen amid deadly clashes last month between supporters of former prime minister Thaksin Shinawatra and the government.
Thailand’s political unrest has badly hurt its tourism and export-driven economy, in a country already suffering from a global economic downturn. But Tarisa said: “The situation has stabilized. There will be protests going forward but as long as they’re peaceful I think we can live with that.”

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