Bloomberg News

Thailand’s Central Bank Has Room for Accommodation, Prasarn Says

November 29, 2011

Nov. 29 (Bloomberg) -- Bank of Thailand Governor Prasarn Trairatvorakul said the central bank has room to be accommodative on interest rates to boost business and consumer confidence after the nation’s worst floods in almost 70 years.

The market has priced in a quarter-percentage point reduction in borrowing costs at the central bank’s meeting tomorrow and the Monetary Policy Committee must do “something different” if it wants to have an impact, Prasarn told reporters in Singapore late yesterday. Any easing of monetary policy should be short term and reversed once the economy recovers from the floods, he said.

Thailand’s industrial output slumped by the most in more than a decade in October as floods shut thousands of factories, disrupting supplies for companies from Apple Inc. to Toyota Motor Corp. The disaster has killed more than 600 people. The National Economic and Social Development Board said last week that flood damage may reach 300 billion baht ($9.6 billion) as it slashed its forecasts for growth this year.

“The policy rate has been at a level which is quite neutral so we feel the MPC should have some space for accommodation if it’s necessary,” Prasarn said. “We also have to admit that the flood has some impact on the confidence of businesses and consumers. If it’s necessary, there is some flexibility that the MPC can accommodate to prevent any deterioration in confidence.”

The central bank left its one-day bond repurchase rate unchanged at 3.5 percent last month after increasing it by a quarter-point for seven straight meetings.

Thailand will cut its benchmark one-day bond repurchase rate by 25 basis points this week, eight of 16 economists surveyed by Bloomberg News predict, with the rest expecting a reduction of 50 basis points.

While Thai inflation in the short term is still on an “upward trend” because of supply shortages as a result of floods and stimulative government policies, price expectations in the market have been “quite stable,” Prasarn said.

--Editors: Patrick G. Henry, Andrew Atkinson

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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