Thailand Monetary Policy


Bank of Thailand cuts rates to counter floods impact amid worsening global outlook

At its 30 November monetary policy meeting, the last of this year, the Bank of Thailand (BoT) decided to cut the one-day repurchase rate by 25 basis points to 3.25%, in a decision broadly expected by market analysts. The move follows a single pause in the tightening cycle at the 19 October meeting, after the Bank had pushed up the key policy rate nine times from a record low of 1.25%. In their statement, monetary authorities underscored concerns about the global economic outlook, which has deteriorated in the wake of the Eurozone sovereign debt crisis. According to the BoT, the probability of recession in the common-currency zone is increasing. Moreover, the Bank reckons that recovery remains fragile in the U.S. economy, despite the slight improvement witnessed recently. Officials also stated that economic growth in Asia is moderating as a result of softening global demand. Meanwhile, monetary authorities acknowledged that the floods caused substantial damage to property and immense disruption to business activity, particularly in the manufacturing sector, which has had to stop production, and thereby created supply chain disruptions. Consequently, officials expect ?economic growth in the last quarter and the whole of 2011 to be much lower than previously projected.? Even though inflation pressures persist due to flood-related shortages, however, the Bank stated that ?the weakening of the global economy would curtail price pressures to some extent.? The bank stated that the current accommodative stance is likely to provide support for reconstruction and investment.

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