Businesses buoyed by rate cut

The Bank of Thailand’s Monetary Policy Committee (MPC) yesterday voted 5-2 to reduce the benchmark rate by 25 basis points, from 1.75 to 1.50 per cent, after lowering it from 2.0 per cent in March.

This crucial decision followed Thailand’s disappointing performance in the first quarter, so the majority of the panel hoped to revive domestic demand and reduce the negative effects of the recent baht appreciation on exports.

Mathee Supapongse, secretary of the committee, said the majority of the panel felt the economy was recovering slowly, helped by a boost in public investment and the positive trend in tourism should help. But the recovery would not fully offset the effects of weak domestic consumption and the weak export sector, which account for 70 per cent of GDP.

He said the central bank would follow up with another measure today to manage capital flow and help depreciate the baht.

The BOT is also due to release its 2015 forecast for gross domestic product in the afternoon. “The rate cut is suitable for the current economic situation, which is in need of a boost from the monetary authority as this will serve as an incentive for businesses to invest more,” said Supant Mongkolsuthree, chairman of the Federation of Thai Industries (FTI).

“This rate cut should also be able to weaken the baht and help exporters against the backdrop that global demand is still weak,” he added. 

Kan Trakulhoon, president and CEO of SCG Group, said a lower rate is good for businesses and will boost export and domestic spending.

Prasert Tadullayasatit, president of the Thai Condominium Association, said that purchasing power to buy residential properties is forecast to rise four per cent, taking into account the interest rate cuts of a combined 0.5 percentage point since the start of this year.

Residential properties that are in the process of being transferred to customers are worth Bt340 billion in Bangkok and suburban areas, consisting of condos, single detached houses and townhouses.

Penthip Pornchaded, president of the Association for the Promotion of Thai Small and Medium Entrepreneurs, said the reduced rate would help lower investment costs, which is something that is currently needed by SMEs.

“The cut would encourage SMEs to invest since the current market’s interest rates of around 7-9 per cent are too high for SMEs and they are still waiting for a subsidised 4 per cent rate from the government,” she said. 

Meanwhile, the Fiscal Policy Office (FPO) has lowered its forecast for the expansion of Thailand’s gross domestic products in 2015 down from January’s prediction of 3.9 per cent to the current projection of 3.7 per cent due to the slump in the export of goods and the slowdown of domestic consumption.

Krisada Chinavicharana, director-general of the FPO, said the office expects exports of goods to expand by only 0.2 per cent in 2015 while the expected increase of inbound tourists (expected at 29.4 million in 2015 when compared to 28.3 million in 2014) and the expected increase in government spending will be the main economic drivers this year.

Chartsiri Sophonpanich, president of Bangkok Bank, said the rate cut is unlikely to help boost the economy since it is not the only key factor driving growth; other key factors include higher public and private spending. 

Arthid Nanthawithya, chief executive officer of Siam Commercial Bank, said the bank would not lead the market in cutting interest rates this time. 

Pakorn Partanapat, senior executive vice president of Kasikornbank, said the MPC cut the policy rate because it wants to weaken the baht, but it might lead to a higher household debt due to the cheaper cost of fund.