Finance & Business World

Thailand’s central bank unexpectedly kept its benchmark interest rate on hold as it assesses the effect of its most aggressive string of cuts ever on an economy facing its first recession in a decade.

The Bank of Thailand held the one-day bond repurchase rate at 1.25 percent today, the lowest level since July 2004. Only two of 21 economists surveyed by Bloomberg News expected the decision. Eighteen economists predicted a 25 basis-point cut and one tipped a 50 basis-point reduction.

“The central bank may want to wait and see the impact of its previous cuts,” said Charl Kengchon, an economist at Kasikorn Research Ltd. in Bangkok who predicted the decision. “The policy rate is less effective in this environment.”

Thailand’s economy probably contracted for a second consecutive quarter in the first three months of this year, putting it into recession after export-demand collapsed and political protests sapped consumer confidence. Government spending may be more effective in spurring growth than lower interest rates, the central bank said April 17.

Thailand’s seven-party coalition government is strong enough to pass a borrowing plan and next year’s budget to help buoy the economy, Prime Minister Abhisit Vejjajiva said in an interview today.

The government on May 6 unveiled a four-year 1.4 trillion- baht ($40.6 billion) investment plan, involving transportation, water distribution, energy, health and education projects. That’s in addition to a 116.7 billion-baht package of training programs, cash handouts and public works aimed at stemming the economic slide this year.

‘Less Effective’

The Bank of Thailand’s interest rate of 1.25 percent follows reductions totaling 2.50 percentage points over four meetings in as many months to April. Consumer prices have been falling since January.

Monetary policy is now less effective than fiscal spending in spurring the economy, Bank of Thailand Deputy Governor Atchana Waiquamdee said April 17.

Loan growth slowed and bad debts rose in the first quarter as the economy deteriorated, the central bank said yesterday no fax payday loans. The nation’s banks are reluctant to lend amid the global recession so fiscal policy is needed, Finance Minister Korn Chatikavanij said April 6.

“Loan growth can pick up if we have demand and acceptable risks. There is no demand now,” Bank of Thailand senior director Nawaporn Maharagkaga said yesterday. “The ability to pay debts has deteriorated because of economic conditions.”

Southeast Asia’s largest economy after Indonesia probably shrank as much as 6 percent in the first three months of this year, Korn said May 7. The government report is due May 25. Gross domestic product will probably continue to shrink before rebounding in the year’s final quarter for its first annual contraction since 1998, the government predicts.

Two Dead

Consumer confidence is at the lowest level in seven years. An emergency decree was imposed in the capital Bangkok last month to quell anti-government riots that left two people dead. Premier Abhisit has pledged to call elections once stability is restored in the nation of 66 million people. The protesters say the prime minister’s rule is illegitimate because he came to office after a court dissolved the former ruling party.

Power in Thailand has shifted between parties allied to former Prime Minister Thaksin Shinawatra and his opponents since the 2006 coup that ousted him, hurting successive governments’ ability to implement spending plans.

Thailand’s economy is improving as production has picked up in electronic and automotive industries and exports and consumer demand are recovering, Korn said May 7.

“We’ve seen increasing demand over the past four to six weeks,” Richard Han, chief executive officer at Hana Microelectronics Pcl, said in an interview with Bloomberg Television today. “The first quarter was the worst.”

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