Thailand’s central bank has reduced its interest rate from two to 1.75 percent in a move unexpected by economists, according to polls carried out by Bloomberg and Reuters. The decision was announced on March 10 in an attempt to lift the sluggish economy, following a vote that had been decided four-to-three by the monetary policy committee.
Experts believe that the verdict was reached due to consumer prices having fallen again in February by 0.52 percent compared with the previous year, following a 0.4 percent year-on-year decline in January.
Thailand follows other economies in the region that are also trying to boost their GDP growth through such measures
Interest rates had been cut by 0.25 percent last year as a result of waning exports and tourism; the country’s biggest sources of revenue. Political and social instability in 2014 had led to a sharp decline in consumer confidence, followed by a drop in fixed investment and weak domestic demand. While the tourism sector was hit significantly as a result of the unrest, with tourist arrivals falling by 10.4 percent in the first half of 2014, according to the Asian Development Bank. Subsequently, GDP growth had dropped to a disappointing 0.7 percent, despite previous estimates by the World Bank of four percent.
Thailand follows other economies in the region that are also trying to boost their GDP growth through such measures; India has already cut its interest rates twice so far this year, while China, Singapore and Indonesia have implemented quantitative easing programmes. Decisions are also due to be made by the central banks of South Korea and New Zealand, which may also follow suit.
The general consensus is that the interest rate cut will do little to provide the impetus needed for the economy, whereas a fiscal stimulus package would be far more beneficial. “The main motivations for rate cuts have been the recent bout of deflation and relative currency strength,” Krystal Tan, an economist at Capital Economics, told the Financial Times. “Thailand’s nominal effective exchange rate has risen considerably, raising concerns about export competitiveness. That said, we doubt the BoT will make any further rate cuts this year. Deflation has been largely a reflection of the fall in global energy prices, rather than demand factors, and will likely prove temporary”.