Central bank maintains policy interest rate at 3.5%

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The Bank of Thailand (BoT) last Wednesday kept its key interest rate unchanged at 3.5 percent owing to the slowdown of the global economy and Thailand’s ongoing nationwide floods.

The BoT’s Monetary Policy Committee (MPC) believes that the current policy rate level is appropriate to address upcoming inflationary pressure and supporting economic adjustments amid heightened uncertainty in the global economy. Meanwhile, with the floods not yet over, their impact on the economy was not fully evident, the committee said in its statement.

Paiboon said the BoT sympathizes with the public and with businesses affected by the flood and sees the current low interest rate adequate to support post-flood rehabilitation. The bank gave assurances to the public that there is sufficient liquidity for the banking system and asked for cooperation from commercial banks to help affected customers by applying moratorium and offering soft loans.

Regarding the ongoing floods, the MPC noted that the severity of the floods has already caused a partial halt in some production sectors and will substantially curtail economic growth for the rest of the year, leaving growth lower than earlier projected. However, reconstruction spending would provide support for domestic demands to gradually pick up in the periods ahead.

Preliminary data for this year’s third quarter pointed to continued growth of the economy though the effects of a softer world economy became evident in the moderation shown in export growth. Trade and domestic demand, particularly from forthcoming government stimulus measures, will help limit downside risks to growth.

Meanwhile, inflationary pressure continued to be sustained by growth in domestic demand though declines in input costs, such as moderate oil prices from a weaker global economy as well as more stable inflation expectations, which would lessen inflationary pressure going forward.

However, the upside risks to inflation from higher public and private spending as the floods recede would need to be monitored, the bank statement said.

The BoT committee said it would remain vigilant in monitoring developments of risks and stand ready to take appropriate policy actions.

The Thai central bank lifted its policy interest rate from a record low of 1.25 percent in July 2010 to fight inflation. Core inflation in September stood at 2.92 percent.