Thailand Cuts Key Interest Rate By 25 Bps

(RTTNews) - The Thai central bank reduced its key interest rate on Wednesday to address the increasing downside risks to the economy amid persistently low inflation.

The Monetary Policy Committee of Bank of Thailand voted 6-1 to cut the policy rate by 25 basis points to 2.00 percent from 2.25 percent. One rate-setter preferred to keep the rate unchanged.

The previous change in the policy rate was a 25-basis point reduction in October.

Policymakers observed that the lower policy rate is consistent with the current assessment of the economic outlook and remains robust to risks going forward.

Members said policies are needed to increase economic competitiveness and enhance potential growth. Despite support from domestic demand and tourism, the bank forecast the economy to grow at a slower than anticipated pace due to structural impediments in manufacturing and competition from imported goods. Headline inflation is forecast to stabilize around the lower bound of the target range. Although inflation at this level is not indicative of future deflation it helps alleviate high costs of living and business expenses, the bank noted.

However, global crude oil prices outlook and potential domestic energy price subsidies pose downside risks to inflation, the bank said.

A period of entrenched deflation is a risk, and more monetary policy support will be required, Capital Economics economist Gareth Leather said. However, the pace of easing cycle is likely to be gradual, the economist added.