The big easing continues. A major surprise today from the Bank of Thailand, which cut interest rates by 25 basis points to 2.75 percent. After repeated indications from Governor Prasarn Trairatvorakul that policy would stay unchanged for now, few had expected the bank to deliver its first rate cut since January. But given the decision was not unanimous, it appears that Prasarn was overruled. As in South Korea last week, the need to boost domestic demand dictated the BoT’s decision. The Thai central bank noted:
The majority of MPC members deemed that monetary policy easing was warranted to shore up domestic demand in the period ahead and ward off the potential negative impact from the global economy which remained weak and fragile.
Thailand expects GDP to grow 5.7 percent this year and Prasarn has cited robust credit demand as the reason to keep rates on hold. But there have been ominous signs of late — exports and factory output have now fallen for three months straight, which probably dictated today’s rate cut. Remember that exports, mainly of industrial goods, account for 60 percent of Thai GDP and the outlook is perilous — the BOT has already halved its export growth forecast for 2012 to 7 percent and has said it will cut this estimate further.
Second, as in most places, pressure is growing from governments on central banks. Radhika Rao, an economist with Forecast in Singapore says:
Official circles have been mounting pressure on the bank to keep its eyes trained on growth rather than price stability.