Policy rate nearly at 4-year low

At the meeting today, the MPC said that the rate cut is aimed at boosting domestic investment. It hopes that the global economic recovery would continue and this would help drive the exports.

"The committee judges that downside risks to growth have risen in the wake of prolonged political situation," said Paiboon Kittisrikangwan, secretary to the MPC.

At the press conference, he said that political uncertainty is now the biggest risk factor to the economic outlook. 

Given the benign inflation, there is a room for the rate cut, he said.

The rate cut was unanimous. Three of seven committee members voted against the cut.

According to Paiboon, the four members viewed that as core inflation remains subdued, the monetary policy has some scope to ease, in order to lend more support to the economy and ensure continuous financial accommodation. 

Three members voted to maintain the policy rate at 2.25 per cent per annum. In their judgment, current monetary policy stance remains accommodative while the main headwinds to growth are not financial in nature. Monetary policy should be used when it is effective in supporting the economic recovery.

"It remains to be seen if businesses will invest more and if savers with extra cash would spend more," he said. 

Paiboon noted that in the last two meetings, the Bt2 trillion infrastructure project has not been part of the MPC's discussion. In this round, it expects only one fourth of planned public spending to proceed, and this encourages the members to act to bolster the economic growth. 

The MPC maintains the view that Thailand's gross domestic product (GDP) would expand below 3 per cent this year.

At this meeting, it considered that The global economy continued to recover from the last meeting, led by the major economies. The Chinese economy expanded steadily, with some sign of moderation in investment. Asian economies’ exports benefited from a recovery in major economies. Domestic demand in ASEAN economies moderated from private investment and public spending.

Growth of the Thai economy slowed through the final quarter of 2013 and January 2014 from domestic demand amid lower private confidence. Tourism has felt more impact from the ongoing political situation. Prolonged political uncertainties would continue to impede the recovery of private consumption and investment. Nonetheless, exports of goods should gradually improve on the back of a recovery in major economies, providing impetus to growth this year.