The central bank is under pressure to slash its policy rate by as much as 100 basis points at tomorrow's Monetary Policy Committee meeting.

The private sector wants to see a swift revival in investor and consumer confidence after delays in spending decisions amid a murky economic and political climate.

The call came at a seminar yesterday, which heard speculation the Bank of Thailand committee will cut the rate by 50 basis points only.

Companies said a half-a-percentage-point cut had been discounted and would not be fully effective in encouraging investment and spending.

The current policy rate is 4.5 per cent.

Prateep Tangmatitham, president of property developer Supalai Plc, told a Money and Wealth magazine seminar consumer confidence would be restored quickly if the central bank cut its policy rate by a full percentage point.

He said every percentage-point cut boosted spending power by 11 per cent and would reduce business operating costs, too.

Prateep said housing demand dropped by about 10 per cent in the first quarter of this year compared with the same period in 2006.

The 2007 minimum lending rate has been an average 7.56 per cent, significantly more than the 5.93 per cent of 2006. In addition, lower demand was being exacerbated by stricter loan-approval criteria at commercial banks.

Several securities houses had anticipated a 50-basis-point cut.

Oishi Group managing director Tan Passakornnatee agreed with a 100-basis-point cut.

Investors base spending decisions on interest rates. If the market rate is cut insignificantly, businesses will not spend more, he said.

"If the central bank cuts rates it should do it a percentage point at a time. This will bring about a quicker reaction than 25-basis-point cuts," Tan said.

The Fiscal Policy Office macroeconomic division planning section chief Ekniti Nitithanprapas said the central bank should reduce rates by 75 basis points to 100 basis points.

The market expects a 50-basis-point cut, he said, adding it was insufficient to stimulate investment and consumption.

He suggested the BOT cut interest rates more than market expectations to signal the government's desire to stimulate the economy.

"If the government and the central bank don't implement strong and rapid measures consumer confidence won't be restored. I believe a clear-cut policy will help," Ekniti said.

He said private investment and consumption had declined significantly. The private sector is not spending on machinery and plant because it lacks confidence, in spite of being at full production capacity, he said. This spending represents as much as 65 per cent of total investment, he added.

While pressing for a steeper rate cut some companies have demanded the Finance Ministry introduce new tax incentives to boost the economy. Increasing government spending would prevent an economic hard landing, they said.

Deputy Finance Minister Sommai Phasee said low tax revenues prevented the government from initiating new tax breaks and blamed it for the current low level of state spending.

However, companies said the state should award concessions for large infrastructure spending so the private sector could shoulder the initial burden.

"If the government does not have enough money, why won't it grant concessions to private companies? Investment in mega projects will create real investment in the country," Hemaraj Land and Development chairman Sawasdi Horrungruang said at a separate seminar yesterday.

The ministry is under increasing pressure to introduce tax cuts to spur spending.

It resolved to delay to next September an increase in value-added tax from 7 per cent to 10 per cent because of worries a rise would further stunt spending.

Siriporn Chanjindamanee

The Nation