Thai central bank may cut rate for 3rd time this year
The Bank of Thailand will lower its one-day bond repurchase rate to 4 percent from 4.50 percent, according to 10 of 16 economists surveyed by Bloomberg News. The other economists in the poll expect a quarter of a point cut. “The Bank of Thailand is likely to cut the rate to kick- start the economy and tie down the ever-appreciating baht,” Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong wrote in an e-mailed note to clients. “Policy makers have become worried about the growth outlook given recent political and policy upsets.”
Protests are planned in Bangkok this week by as many as 12 groups opposed to the September coup and critical of the military-installed government's performance. The nation's finance minister has called for lower rates to spur spending after investment curbs and terrorist attacks eroded confidence.
The central bank has cut its key rate by 25 basis points at two previous meetings this year. ---------Worsening outlook
The World Bank on April 5 cut Thailand's 2007 economic growth outlook for a second time in five months, lowering it to 4.3 percent from 4.6 percent. The economy expanded 5 percent last year, with fourth-quarter growth of 4.2 percent the slowest pace in almost two years.
The baht is trading near its highest level against the dollar in nine years after Bank of Thailand measures to curb the currency's 16 percent surge last year by penalizing foreign investors backfired. Limits on bringing money into the country eroded consumer and business confidence, crimping imports, and caused rifts within the government.
“This baht scenario is obviously not good,” said Catherine Tan, head of emerging markets at Forecast Singapore Pte. “Exporters are still receiving money and they have to sell the dollars they receive,” which is pushing the baht higher.
The baht has climbed 2.2 percent this year to 34.89 per dollar onshore. An offshore rate, spawned by the investment restrictions, has surged five times faster.
Inflation slowed to 2 percent in March, the lowest in three years, from 2.3 percent a month earlier as consumption cooled amid a slump in confidence. ----------Declining confidence
A measure of business sentiment tumbled to the lowest in more than five years in February. An index of consumer confidence fell for a fourth month in February, dropping to a six-month low. The gauge has slid for 15 of the past 17 months.
Thai credit-default swaps, used to speculate on a borrower's ability to repay its debt, have climbed this year as perceptions of the nation's creditworthiness worsened. The chance of Thailand defaulting in the next five year has risen to 3 percent from 2 percent at the end of 2006, based on a JPMorgan Chase & Co. valuation model that takes into account swap prices.
Credit-default swaps have become one of the financial markets' best barometers of shifts in credit quality. They were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default. The cost of the contracts rises as perceptions of credit quality deteriorate. -------------Spur spending
Finance Minister Chalongphob Sussangkarn, a critic of the central bank's currency controls before joining the government, said last month the benchmark rate must be cut to encourage consumer spending and spur the slowing economy. Chalongphob replaced Pridiyathorn Devakula, a supporter of the investment restrictions who quit citing disputes with other Cabinet members.
“Given that the central bank's capital controls have thus far failed to curb the baht's strength, the Finance Ministry is believed to be advocating for more aggressive interest rate cuts,” Usara Wilaipich, a Bangkok-based economist at Standard Chartered Bank, wrote in a note to clients.
Groups, including some backed by the Thai Rak Thai political party founded by deposed Prime Minister Thaksin Shinawatra, last month began holding anti-government and coup rallies in Bangkok.