Bloomberg News

Thailand May Cut Key Rate as Growth Risks Loom After Flood

January 24, 2012

(Updates economist surveys in second, 19th paragraphs.)

Jan. 24 (Bloomberg) -- Thailand may cut interest rates for the second consecutive meeting to help spur a recovery from the worst floods in almost 70 years and as a deteriorating global economy threatens growth.

The Bank of Thailand will trim its benchmark one-day bond repurchase rate by a quarter of a percentage point to 3 percent, according to all 15 economists surveyed by Bloomberg News ahead of a decision due at 2:30 p.m. in Bangkok tomorrow. The country cut its key rate for the first time in more than two years at the previous meeting on Nov. 30.

Thailand may join the Philippines and Indonesia in easing monetary policy after the World Bank said last week that a recession in the euro region threatens to exacerbate a slowdown in emerging markets. Prime Minister Yingluck Shinawatra has pledged to spend 350 billion baht ($11.1 billion) on infrastructure to prevent a repeat of floods that caused the worst slump in industrial output in more than 10 years.

“The risks to growth have outpaced the threat of inflation, leaving the door open for the central bank to cut the rate,” said Usara Wilaipich, an economist at Standard Chartered Pcl in Bangkok, who expects the Bank of Thailand to reduce its benchmark rate by half a percentage point this year.

The floods shuttered more than 16,000 factories, reducing Thailand’s economic growth last year to about 1.5 percent, compared with estimates of as high as 4.5 percent before the deluge, Finance Minister Kittiratt Na-Ranong said last week.

“Thailand can’t afford a repeat of the floods,” Kittiratt said yesterday. “No one will give us a second chance.”

Honda, Western Digital

Even though the floodwaters receded in December, Western Digital Corp. won’t resume full production in Thailand until early in the second half, Chief Executive Officer John Coyne said Jan. 16 in Bangkok. Honda Motor Co. will need to spend more than 50 billion yen ($649 million) to renovate damaged factories, the Nikkei newspaper reported on Jan. 15.

Thailand’s economy, the biggest in Southeast Asia after Indonesia, may have contracted 5 percent last quarter from a year earlier, according to the finance ministry. Exports shrank 2 percent in December, compared with a 12.4 percent slide a month earlier, the commerce ministry said Jan. 20.

Bank of Thailand Governor Prasarn Trairatvorakul said Dec. 6 the economy will fully recover from the floods by the third quarter, and the central bank “has room” to further ease monetary policy in the event that recovery falters.

Global Slowdown

The World Bank cut its global growth forecast by the most in three years last week, predicting the world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent. Growth in Asian economies is faltering as Europe’s debt woes hurt the region’s exports. China reported last week its weakest expansion in 10 quarters.

“It’s quite clear that the global economy and the European economy will be in worse shape than many had expected and that will hurt our exports,” said former Deputy Governor Bandid Nijathaworn. “So, it’s possible that monetary policy will be eased further to help support the economy amid high global uncertainties.”

The Philippines cut interest rates last week for the first time since July 2009 and Bank Indonesia widened the lower range of its interbank lending rate in a de facto easing of monetary policy.

New Zealand’s central bank will leave the official cash rate at a record low 2.5 percent on Jan. 26, according to all 14 economists surveyed by Bloomberg News.

Governor Alan Bollard last month lowered his forecast for economic growth in the year ending March 31, and signaled he wasn’t likely to raise borrowing costs until mid-2012. The case for no change was bolstered by a report last week that showed consumer prices unexpectedly fell 0.3 percent in the fourth quarter.

--Editors: Tony Jordan, Sunil Jagtiani

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net; Michael Munoz in Hong Kong at mjmunoz@bloomberg.net

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


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