Thai central bank cuts key interest rate first time in two years

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BANGKOK, Nov 30 – The Bank of Thailand on Wednesday cut policy interest rate by 0.25 per cent for the first time in two years to support economic restoration and investment after an impact of flooding on the Thai economy has widened and become more severe. 

At Wednesday’s meeting, the BoT’s Monetary Policy Committee (MPC) voted 5 to 2 to reduce the policy rate by 0.25 percent, from 3.50 percent to 3.25 percent per annum, with 2 votes in favour of a 0.50 percent reduction, said Mr Paiboon Kittisrikangwan, Secretary of the Monetary Policy Committee (MPC).

The MPC expected economic growth in the last quarter and the whole of 2011 to be much lower than previously projected.

With the worst of the flood crisis over, the economy has geared up to the restoration and reconstruction phase which, if delayed could undermine confidence and domestic demand recovery, the bank statement said.

The MPC said it would remain vigilant in monitoring developments in the global economy as well as progress on domestic restoration efforts and stands ready to take appropriate policy actions.

It also warned that inflationary pressure persists due to government stimulus measures and an anticipated pickup in private sector demand from restoration spending.

Nevertheless, the weakening of the global economy would curtail price pressure to some extent.

At the same time, price increases driven by flood-related shortages, which have only affected a limited number of goods in certain areas, was expected to be temporary.

The risk of inflation accelerating to the extent that would threaten economic stability thus remains contained.

The MPC assessed that the global economic outlook had deteriorated after the impact of euro zone’s sovereign debt problem on financial markets of the major economies became more pronounced, increasing the possibility of a recession in the euro zone. While the US economy improved slightly, its recovery remained fragile.