bl<>Thailand’s Tarisa May Hold Rate as Political Chaos Hurts Growth
By Suttinee Yuvejwattana and Michael Munoz
June 1 (Bloomberg) -- Thailand’s central bank may keep its benchmark interest rate at the lowest level since July 2004 after the nation’s deadliest political violence in almost two decades undermined economic growth.
Bank of Thailand Governor Tarisa Watanagase will leave the one-day bond repurchase rate unchanged at 1.25 percent for a ninth meeting, according to all 11 economists surveyed by Bloomberg News. The decision is due at 2:30 p.m. in Bangkok tomorrow.
Thailand has refrained from joining Malaysia, India and Australia in raising borrowing costs this year even as a rebound in exports helped the economy expand the most in 15 years last quarter. Growth will be “strongly affected” in the three months through June after weeks of anti-government protests led to riots and left more than 80 people dead, Tarisa said May 26.
“While we believe the central bank is still keen to raise interest rates to a more neutral level, this will require a more stable political backdrop,” said Usara Wilaipich, an economist at Standard Chartered Plc in Bangkok. “The situation now remains fluid. The first-quarter recovery momentum is also expected to fade rapidly in the second quarter as the impact from political chaos kicked in.”
Standard Chartered pushed back its forecast for a rate increase tomorrow to the fourth quarter after rioting erupted across Bangkok on May 19 as Thai security forces cleared an anti-government protest camp and forced the group’s leaders to surrender.
Riots, Arson
About 16 people died that day and more than 30 buildings were set alight, including the Stock Exchange of Thailand, a shopping complex owned by Central Pattana Pcl and at least eight branches of Bangkok Bank Pcl. About one third of the Southeast Asian nation was under a curfew last week even as the demonstrations ended.
Southeast Asia’s largest economy after Indonesia grew 12 percent in the first three months of 2010 as exports, investment and consumption recovered after a recession last year. Still, the National Economic & Social Development Board refrained from raising its forecast for an increase of as much as 4.5 percent in gross domestic product this year after the first-quarter report, saying GDP may shrink in the second half if the political unrest can’t be resolved.
Finance Minister Korn Chatikavanij said last month the economy will be “less rosy” from the second quarter onwards, and the government estimates the unrest may cost Thailand as much as 145 billion baht ($4.46 billion) and reduce growth by 1.1 percentage points.
Inflation Benign
Inflation has stayed below 4 percent in Thailand, where Toyota Motor Corp. and General Motors Co. have factories, giving the central bank room to keep borrowing costs low. Consumer prices rose 3 percent from a year earlier in April after climbing 3.4 percent in March, while core inflation, which excludes fresh food and fuel prices, rose 0.5 percent.
The central bank forecasts inflation will accelerate to as much as 4.8 percent this year on rising oil prices and a recovering economy. Core inflation, which it uses to guide policy, may average as much as 2 percent this year, the Bank of Thailand said in April.
Prime Minister Abhisit Vejjajiva vowed on May 21 to “rebuild the house” through a reconciliation plan that includes addressing economic disparities and rewriting political rules. The government plans to spend about a third of its 2.07 trillion baht budget next year on measures to narrow a divide between rich and poor that fueled the protests, Abhisit said May 26.
“Protests have ended for now, but political conflicts remain,” Standard Chartered’s Usara said. “This political backdrop clouds Thailand’s economic outlook for the months ahead.”
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