Bank of Thailand rates unchanged

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Bank of Thailand rates unchanged 
Bangkok Post: 16 Jul 2009
WWW.BANGKOKPOST.COM

Policy rate kept steady at 1.25%

The Bank of Thailand's Monetary Policy Committee yesterday confirmed that its policy interest rate would remain unchanged at 1.25%.

The decision reflects the MPC's growing confidence that the global economy is stabilising, said Paiboon Kittisrikangwan, the central bank's assistant governor for the Monetary Policy Department.

Past interest rate reductions and planned government stimulus measures would have further positive effects on the economy, he said.

June's 4% year-on-year contraction in consumer prices was mainly caused by the government subsidising utility bills for low-income households, he said.

While global economic risks are widespread, consumption and manufacturing has begun to stabilise and is moving into positive territory. But the question is whether the trend is sustainable, Mr Paiboon said.

"The central bank has not substantiated the impact of the H1N1 flu on the economy, but it will hamper tourism. Political change, which derails fiscal spending, is another economic risk," he said.

Commercial banks cut lending rates by an average 0.25 percentage points in May. Further reductions are likely in the near future, he said.

This week's government issuance of savings bonds worth 80 billion baht was quickly snapped by investors. The government's plans for further bond issuances will not affect money market liquidity as funds will be used for later investments, he said.

The MPC's decision was widely expected by most economists who believed that the Thai economy has bottomed out, said Charl Kengchon, managing director of Kasikorn Research Center.

The economy should improve from now on. The second quarter's economic contraction should be less than the 7.1% year-on-year drop in the first quarter, he said.

The impact of the government's fiscal stimulus packages will be realised in the second half of the year, he said.

The parliament has approved the government's executive decree to borrow 400 billion baht for investment in small to medium-sized infrastructure projects.

A further bill to borrow another 400 billion baht is waiting for Parliament's final reading.

If passed, the law will allow the government to issue bonds to fund projects.