Finance & Business World

Thailand’s central bank kept its benchmark interest rate unchanged at a third straight meeting after a government report showed the economy is past the worst of its recession.

The Bank of Thailand maintained the one-day bond repurchase rate at 1.25 percent, it said in a statement today. That’s the lowest level since July 2004. All 13 economists surveyed by Bloomberg News expected the decision.

“The benchmark will stay at this level for a long time,” said Sukkawat Prasurtying, acting chief executive officer at Bangkok-based Manulife Asset Management Co., which oversees about 5 billion baht ($147 million) of assets. “There is no need for a further interest-rate cut as the economy is on the path of recovery.”

Governor Tarisa Watanagase joins policy makers from Europe to Asia who have stopped reducing borrowing costs as about $2 trillion in pledged government stimulus helps the world recover from its slump. Thailand’s recession eased last quarter, helped by public spending and improving export orders, an Aug. 24 report showed.

“The current level of the policy interest rate is appropriate and supportive of the economic recovery without generating any inflationary pressure,” Assistant Governor Paiboon Kittisrikangwan said in Bangkok today. “There is no reason to change the rate now, but we are ready to” ease or tighten depending on the economic condition, he said.

‘Bottomed Out’

Thailand’s benchmark SET Index gained 0.1 percent to 655.87 at 3.26 p.m. in Bangkok. The baht was unchanged at 34.02 against the dollar.

The Bank of Thailand lowered its benchmark interest rate by a total of 2.5 percentage points in the four meetings from December to April to revive growth, its most aggressive cuts since it adopted inflation targeting in 2000. Consumer prices have fallen for seven months.

The threat that the economy won’t recover has receded, Paiboon said. The continuity of government spending and sustainability of the global recovery are the main risks for Thailand, he said.

“We do think that the Bank of Thailand will keep rates at this level till the middle of next year so as to take further insurance against growth,” said Prakriti Sofat, an economist at HSBC Holdings Plc in Singapore. An increase in borrowing costs “will materialize only in the second half of 2010, once the global recovery is well entrenched.”

‘V-Shaped Recovery’

The nation’s gross domestic product fell 4.9 percent in the second quarter from a year earlier after contracting 7.1 percent in the previous three months. Southeast Asia’s second- largest economy grew 2.3 percent from the first quarter.

“The economy has bottomed out” and is experiencing a “V-shaped recovery,” Chakramon Phasukavanich, a member of the central bank’s monetary policy board, said in Bangkok earlier today. “All indicators showed improvement in the third quarter. Exports have picked up in most of the sectors. Companies started to hire more staff. People have more confidence.”

Thailand’s GDP contraction will ease in the third quarter and the economy will resume growth in the last three months of the year, the government said this week. Companies including Hana Microelectronics Pcl and a local unit of Western Digital Corp. have started to hire workers to meet rising orders as their customers replenish stocks.

Thai Politics

Thai consumer confidence has improved since May as Prime Minister Abhisit Vejjajiva withstands protests against his rule, enabling the Cabinet on Aug. 18 to approve a revised 1.06 trillion-baht ($31 billion), three-year investment program to help lift the economy out of its recession. The plan is in addition to a 116.7 billion-baht stimulus package implemented in the first half of 2009.

The Bank of Thailand “should be fairly positive” about the economy as “the fiscal stimulus will still contribute positively to growth in 2010,” said Rahul Bajoria, an economist at Barclays Capital in Singapore.

Power in Thailand has shifted between parties allied to former Prime Minister Thaksin Shinawatra and his opponents since the 2006 coup that ousted him. Protesters against Abhisit say the prime minister’s rule is illegitimate because he came to office after a court dissolved the previous ruling party.

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