Thai minutes: political strife poses risks to economy, businesses

by Reuters
Wednesday, 26 March 2014 03:36 GMT

BANGKOK, March 26 (Reuters) - The Bank of Thailand decided to cut interest rates this month due to risks of a damaging economic slowdown from an intractable political crisis, potentially leaving some firms unable to service debt, minutes from the bank's last meeting showed on Wednesday.

"Members agreed that the ongoing political uncertainty posed a key downside risk to growth, through delayed government spending and deteriorating private sector confidence, with potential repercussions on private consumption and investment," the minutes of its March 12 meeting showed.

"A prolonged period of economic slowdown might hinder the corporate sector's efficiency and competitiveness," the board minutes said, adding that liquidity and the ability of firms to service debt could deteriorate.

However, overall, members thought corporate funding costs had remained low and had not been an obstacle for businesses.

At the meeting, the MPC voted 4-3 to cut the benchmark interest rate by a quarter of a point to 2.0 percent, a level last seen in December 2010, to support growth and confidence hurt by months of political unrest. .

Three members voted to leave the rate unchanged. They argued that the current monetary policy stance was adequately accommodative and could support economic recovery.

Anti-government protests in Bangkok, which started in November, sent consumer confidence to a 12-year low last month. They have hit consumption and scared away tourists from the capital.

In January, the committee had voted 4-3 to keep the policy rate unchanged following a surprise cut in November. Twenty-three people have been killed since and hundreds injured.

The committee revised its forecast for GDP growth in 2014 down to 2.7 percent from around 3 percent, saying domestic demand would be weaker than expected, although exports were expected to improve this year.

According to a Reuters poll, customs-based figures later on Wednesday are forecast to show an increase of just 0.4 percent in exports in February from a year before after a drop of nearly 2 percent in January.

Thailand is a regional hub and export base for top global carmakers and a major producers of hard disk drives.

Poor trade numbers last year crimped Thai growth, which was only 2.9 percent compared with 6.5 percent in 2012 when Thailand was rebounding from devastating floods. (Reporting by Orathai Sriring; Editing by Alan Raybould & Shri Navaratnam)

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