The Bank of Thailand  is expected to slash its key policy interest rate aggressively at the next meeting of the Monetary Policy Committee in a bid to rev up the sluggish economy amid a delay in government spending, says a senior economist.

A cut of half a percentage point is on the cards.

However, one developer believes the property sector will not benefit from the cut, but rather will remain in the doldrums.

Usara Wilaipich, senior economist at Standard Chartered Bank (Thai), told a seminar yesterday that the central bank needed to be even more aggressive in cutting the one-day repurchase rate, because economic figures indicated the slow-down was greater than expected. Gross domestic product in the first quarter was projected to grow about 3 per cent.

Usara said a huge interest-rate cut was needed during this period of political uncertainty and postponed fiscal spending. She expects the monetary policy to boost the economy effectively at the beginning of next year.

"As long as confidence does not pick up, we have no choice but to depend on monetary policy, although lowering the interest rate could slightly boost the economy," said the economist.

She said the government should speed up its spending, since the private sector had been reluctant to consume and invest.

Phatra Securities also recently predicted a high chance that the BOT would cut the interest rate 50 basis points on May 23.

Usara said the economy would pick up eventually once the country found a way out of its political uncertainty.

Consumption will respond positively shortly before investment recovers in the next quarter, she added.

Free-trade agreements, particularly the Japan-Thailand Economic Partnership Agreement (Jtepa), and investments in mega-projects will be positive factors in bolstering growth.

Jtepa is a comprehensive agreement covering trade, service and investment that will benefit Thai and Japanese investors alike, she said.

Asian Property Development CEO Anuphong Assavabhokhin said the interest rate did not directly effect on the property sector, which was sensitive to confidence, economic growth, unemployment and oil prices.

He said the sector would probably slow down, as the economy was forecast to grow only 3.5-4 per cent, lower than last year's 4.6-4.7 per cent.

He suggested the government introduce measures to boost demand from home-buyers directly, such as tax credits rather than a special business tax or property transfer tax, he said.

Anuphong said developers should mainly seek niche markets in which they were expert.

Usara predicted the baht could weaken to 36-37 to the US dollar in the third quarter - if the political uncertainty was sorted out - because currency speculation had already been wiped out.

Anoma Srisukkasem

The Nation