Surprise Thai rate cut as junta trims growth forecast

The Bank of Thailand said in a statement policy board members voted by 5-2 to cut the rate to 1.50 per cent from 1.75 per cent, its lowest since July 2010.

The decision came just hours after the finance ministry downgraded its growth forecast for 2015 from 3.9 to 3.7 per cent.

The interest rate cut surprised most analysts. A survey by Bloomberg of 20 regional economists found 18 had expected the bank to keep the rate steady since it had already slashed the rate by 0.25 per centage points in March.

Economic growth slowed sharply in 2014 to its weakest pace in three years, as political instability compounded a fall in agricultural prices, waning exports and low consumer confidence.

The military, which took over in a coup last May after months of disruptive street protests, has vowed to kickstart the economy. 

But aside from a bump in tourist numbers since protests ended, the junta has failed to ignite growth.

In February the finance minister said he had been told by junta chief Prayut Chan-O-Cha to push for at least 4.0 per cent growth for 2015, something many analysts thought optimistic. 

The World Bank estimates growth for 2015 will be closer to 3.5 per cent.

In its statement the Bank of Thailand said it believed the economy would recover "at a slower pace" than previously assessed because of continued weaker than expected exports, low consumer confidence and inflationary pressures. 

"There is no denying the weakness of recent economic data," Krystal Tan, an economist at Capital Economics, said in a briefing note after the rate cut.

But she said there was still room for optimism further down the track, "helped by an increase in government spending, a resurgent tourism sector, and earlier rates cuts".

Observers say prolonged weak growth may heap pressure onto the junta as it tries to pass a new constitution before fresh elections mooted for next year.