Policy rate cut by 25bps

“The MPC will closely monitor developments of the Thai economy, financial stability risks as well as capital flow situation, and stand ready to take appropriate action as warranted,” said Paiboon Kittisrikangwan, secretary of the MPC.

The last interest rate cut took place in October 2012. The decision today takes effect immediately. 

 

Thirteen out of 22 econmists surveyed by Bloomberg expected the rate cut. Most economists agreed that the slowing growth in the first quarter justifies the rate cut and this should not hurt the central bank's credibility. 

 

Prime Minister Yingluck Shinawatra said before joining the parliamentary budget screening today that she expected the MPC to lower the benchmark rate, to help spur the economy. 

 

Following is the statement from the MPC.

The global economic recovery was slower than expected. The US economy continued to recover gradually. The eurozone economy remained weak, but tail risks have declined. The Chinese and Asian economies expanded less than expected, which may cause a delay in Thai exports’ recovery. Meanwhile, the Japanese economy began to benefit from economic stimulus policies, as reflected by improvement in exports and private consumption. Global financial market remained volatile, leading to persistent capital flows into the region and exchange rate volatility.

The Thai economy in the first quarter of this year grew less than expected from tepid domestic demand, which could weigh on overall economic momentum particularly if there was delay in government’s infrastructure investment expected to start later this year. 

Exports are subject to downside risks from growth moderation in regional economies, especially China. Inflationary pressure eased further owing to lower production costs, while growth of private credit and household debts remained elevated.

The committee judges that the Thai economy should continue to expand on the back of sound economic fundamentals, although downside risks have increased from lower-than-expected growth in the first quarter of this year. As inflation remains well within the target, monetary policy has room to further cushion against downside risks to domestic demand. 

Against the backdrop of continued financial stability concerns, the MPC thus voted unanimously to reduce the policy rate by 0.25 per cent from 2.75 to 2.50 per cent per annum, with immediate effect.