MPC expected to cut rate by 50 basis points
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A rate cut of half a percentage point will emerge from the Monetary Policy Committee meeting tomorrow because of the severe flood damage, many economists believe.
“It’s possible for a temporary rate cut of as much as 50 basis points to 3.00 per cent at the November 30 meeting because of the floods,” Usara Wilaipich, senior economist at Standard Chartered Bank (Thai), said yesterday.
The policy rate, or one-day bond repurchase rate, was left at 3.5 per cent at the last meeting.
Tisco Securities also envisages a 50-basis-point downward adjustment, citing rising risk from the ravaging run-off to economic expansion.
A lowered policy rate is widely anticipated but to a lesser extent by some observers, such as United Overseas Bank. “We think the Bank of Thailand will cut rates by 25 basis points on November 30, to support the economy, given the adverse impact on GDP growth brought by the flooding,” Chow Penn Nee, Singapore-based UOB economist, said in an e-mail response.
The National Economic and Social Development Board is predicting an economic contraction for this quarter of 3.7 per cent year on year and has slashed its forecast for the whole year to 1.5-per-cent growth in gross domestic product from 3.5-4.0 per cent.
The Bank of Thailand has also signalled a possible downgrade in this year’s growth estimate after October’s downward revision to 2.6 per cent.
“The Thai economy will likely suffer severe impacts in the fourth quarter” of this year, said Prasarn Trairatvorakul, the central bank’s governor.
UOB forecasts a contraction of 1.5 per cent this quarter and full-year growth of 2.0 per cent. Many economists are trimming this year’s growth projections for Thailand.
The country will tinker with the edges of monetary policy to keep its economy growing next year, but still-high inflation and overseas turmoil mean policy changes could be made with caution.
The likely global economic slowdown on the back of an expected recession in the euro zone and weakening US economy should be taken into account for Thailand’s monetary direction next year, said Usara, the StanChart economist.
The monetary stance is expected take a more easing bias than tightening in 2012 because of higher external risks to growth, she said.
“Next year, the policy rate is likely to be maintained” after this likely rate cut, she added.
Tisco Securities said in its research note: “We anticipate the policy rate to remain stable at 3.00 per cent throughout” 2012.
However, there could be an upside due to the government’s stimulus policies and recovery from the flood crisis, it said.
The UOB’s Chow cautioned that 2012 could see the policy rate resume its upward trajectory, as the ruling Pheu Thai Party’s pro-consumption platform could add to inflationary pressures.
“We are looking at the rate at 3.5 per cent for end-2012,” she said.
UOB projects headline inflation at 3.4 per cent, with food prices remaining elevated because of the flooding effects and the government’s rice price guarantee.
