Thailand Unexpectedly Cuts Rate as Protests Crimp Outlook

Thailand unexpectedly cut its key interest rate for a second time this year, as escalating anti-government protests threaten investor confidence and local demand, hurting the nation’s growth outlook. The baht fell.

The Bank of Thailand cut its one-day bond repurchase rate by a quarter of a percentage point to 2.25 percent, with monetary policy committee members voting six-to-one in favor of the decision, it said in Bangkok today. All 19 economists in a Bloomberg survey predicted the rate would be held.

Thai protesters this week besieged government ministries and urged civil servants to join a push to oust Prime Minister Yingluck Shinawatra, an escalation of rallies that began a month ago against an amnesty for most political offenses stretching back to the 2006 coup that ousted her brother Thaksin. The economy expanded a less-than-estimated 1.3 percent in the third quarter from the previous three months.

“The central bank seems to be concerned about growth and the sluggish exports, and on top of that, there’s the political concern,” said Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp. “Should the protests prolong and impact government spending, tourism and the economy further, they could consider another cut.”

The baht reversed earlier gains to slip 0.2 percent to 32.16 against the dollar as of 3:25 p.m. local time, the weakest level since Sept. 11. The SET Index of shares extended gains, climbing 0.6 percent.

Higher Risks

Protest leader Suthep Thaugsuban, who oversaw a deadly crackdown on Thaksin supporters when he was deputy premier in 2010, has called for a nationwide program of civil disobedience to bring down the administration of Yingluck, whose Pheu Thai party won a parliamentary majority in elections in 2011. A confidence vote is scheduled for tomorrow.

The Thai central bank today cut its 2013 growth forecast to about 3 percent from 3.7 percent earlier, and its 2014 estimate to about 4 percent from 4.8 percent. “There are higher downside risks to growth stemming from delays in government investment and fragile private confidence, which could be compounded by the ongoing political situation,” Assistant Governor Paiboon Kittisrikangwan said at a briefing today. “Given the benign inflation outlook and moderating household credit growth, there is room for monetary policy to mitigate downside risks to the economy.”

Yingluck’s administration has tried to speed up budget disbursement and boost local demand as plans to spend 2 trillion baht ($62 billion) on infrastructure and 350 billion baht on water management projects have stalled. Consumer confidence in October fell to the lowest since March 2012, while exports slipped for a second straight month, data earlier today showed.

The state forecasting agency this month cut its full-year expansion estimate to 3 percent from a range of 3.8 percent to 4.3 percent, and said it expected no export growth this year.

“Political instability has retarded progress on infrastructure development and thereby constrained Thailand’s growth,” Fitch Ratings said in a statement earlier today. “Moreover, political noise could increase investor skittishness as the U.S. Fed’s tapering of quantitative easing draws closer.”

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