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-Thai cbank cuts key rate, says tension still impeding recovery

Source: Reuters - Wed, 12 Mar 2014 08:11 GMT
Author: Reuters
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(Adds details, c.bank comment)

* Committee votes 4-3 to cut rate to 2.0 pct

* C.bank sees 2014 GDP growth at lower than 3 pct

* Cut made to spur spending, lift confidence

* Committee saw "some scope to ease"

By Orathai Sriring and Kitiphong Thaichareon

BANGKOK, March 12 (Reuters) - Thailand's central bank cut its benchmark interest rate by 25 basis points on Wednesday in a bid to spark growth in an sluggish economy hurt by months of political unrest.

Eleven out of 19 economists in a Reuters poll had expected a 25 basis point cut in the one-day repurchase rate.

The Bank of Thailand's Monetary Policy Committee (MPC) voted 4-3 to cut the rate to 2.0 percent, a level last seen in late 2010.

At its last meeting on Jan. 22, the committee unexpectedly voted 4-3 to keep the rate unchanged while warning of substantially increased risks to growth from the turmoil.

On Wednesday, it appeared that one member who opposed a cut on Jan. 22 now felt it was needed.

A committee statement said "downside risks to growth have risen in the wake of prolonged political situation. Core inflation has edged up, but remains subdued. Monetary policy has some scope to ease, in order to lend more support to the economy and ensure continuous financial accommodation."

It also said that "prolonged political uncertainties would continue to impede recovery of private consumption and investment".

The statement said the three members who opposed the cut felt existing policy was accommodative "while the main headwinds to growth are not financial in nature."

The central bank said economic growth is now expected to be less than 3 percent this year. At the start of 2014, it expected growth of about 4 percent.

After the rate cut was announced, the baht was little changed at 32.42-32.45 to the dollar.

SCALED-BACK PROTESTS

Wednesday's meeting took place at a time protesters trying to unseat Prime Minister Yingluck Shinawatra have scaled back their action, but political tension and uncertainty continues to take a toll on Southeast Asia's second-biggest economy, after Indonesia.

Thailand's consumer confidence tumbled to a 12-year low in February, a survey showed last week. Violence and the protracted tension have been scaring away tourists from Bangkok and hurting domestic demand.

Twenty-three people have been killed, most in shootings and grenade blasts, since late November.

Fitch Ratings said last week "prolonged and more intense political tension could risk protracted economic weakness and erosion of market confidence, which could ultimately put pressure on sovereign creditworthiness."

In November, when anti-government protests had just begun, the MPC surprised nearly all economists by cutting the benchmark rate by 25 bps, noting that political tension was having an economic impact. (Additional reporting by Pairat Temphairojana; Editing by Richard Borsuk)

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