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Business News/ News / World/  Thailand holds rate for fourth time as state spending boosted
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Thailand holds rate for fourth time as state spending boosted

Bank of Thailand keeps 1-day bond repurchase rate at 2%, as Thai cabinet raises spending to spur growth

The Bank of Thailand’s main building in Bangkok. Photo: BloombergPremium
The Bank of Thailand’s main building in Bangkok. Photo: Bloomberg

Bangkok: Thailand kept its key interest rate unchanged for a fourth straight meeting to support the economy as Prime Minister Prayuth Chan-Ocha’s newly appointed cabinet increases spending to spur growth.

The Bank of Thailand held its one-day bond repurchase rate at 2%, with monetary policy committee members voting 5-0 in favour, it said in Bangkok on Wednesday. All 21 economists in a Bloomberg News survey predicted the decision, which extends a pause since March.

The parliament on Tuesday approved a budget proposal of 2.58 trillion baht ($80 billion) for fiscal year 2015, and Prayuth has ordered state agencies to front-load spending from the first quarter to boost local demand. Finance minister Sommai Phasee said this week that monetary policy is “quite balanced," and that he expects to work “smoothly" with the central bank.

“The interest rate should stay at this low level for some time to help stimulate economic growth," said Adithep Vanabriksha, Bangkok-based chief investment officer at Aberdeen Asset Management Plc. “The economy will certainly rebound in the second half and through 2015," he said, even as the outlook remains unclear because it’s uncertain how the government’s policies will materialize.

The baht slipped 0.1% to 32.230 against the US dollar as of 2.53pm local time on Wednesday. It has strengthened about 1.5% so far this year, among the best performers in Asia of 11 currencies tracked by Bloomberg. The benchmark SET Index gained 0.2%.

Accomodative Policy

Thailand avoided a technical recession last quarter after gross domestic product (GDP) grew 0.9% from the previous three months when it shrank 1.9%. The state planning agency forecasts full-year growth at 1.5% to 2%.

Consumer confidence climbed to the highest in a year in August, and Sommai has said the finance ministry will introduce new instruments for infrastructure projects. Global funds have bought a net $5.04 billion of Thai bonds and equities in the quarter to date, according to data compiled by Bloomberg.

The monetary authority’s action on Wednesday is in contrast to policy tightening elsewhere in the region: the Philippines raised its benchmark rate for a second meeting earlier this month, while Malaysia increased borrowing costs in July.

“The accommodative monetary policy is still needed, given the early stage of the economic recovery," Thai assistant governor Mathee Supapongse told reporters in Bangkok on Wednesday. “It doesn’t pose risks to financial stability," he said, adding that the central bank still expects a “V-shaped recovery" from the second quarter. Too much economic stimulus isn’t sustainable, Mathee said, adding that the central bank will release its revised growth forecasts on 26 September.

Prayuth took the post of prime minister last month after he was appointed by his hand-picked legislature, more than half of them from the military. Prayuth has said elections will be held no earlier than late-2015, after the junta and its appointed bodies write a new constitution and enact measures to “reform" Thai politics and society. Bloomberg

Michael J. Munoz in Hong Kong and Margo Towie and Anuchit Nguyen in Bangkok also contributed to this story.

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Published: 17 Sep 2014, 07:55 PM IST
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