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Published on February 1, 2008

The Bank of Thailand is looking out for any possible impact the slowdown in the United States may have on the local economy after the US Federal Reserve cut its key lending rate for the second time in eight days.

The Fed on Wednesday slashed the fed funds rate by a half point, following its 0.75-percentage-point cut on January 22.

Titanun Mallikamas, director of the central bank's domestic economic department, yesterday said the Thai economy could be adversely affected in a number of ways.

The Monetary Policy Committee will evaluate changes, if any, in the economic outlook and make a decision on interest-rate policy at its February 27 meeting.

The BOT will closely monitor what impact the sub-prime crisis in the US has had on Thai exports. The credit crunch, however, did not affect exports in December, which grew 19.5 per cent year on year, Titanun said.

"We need to monitor the situation closely after the Fed move, because the global market continues to fluctuate and uncertainty remains. So far, we have not seen any effect on exports," he said.

One banker believes this year will be a tougher one for businesses.

Kasikornbank CEO Banthoon Lamsam commented yesterday that the impact from the sub-prime crisis would be of most concern, as the deep rate cuts by the Fed reflected the severity of the problem in the US.

"This year will be harder for businesses. The US has enormous purchasing power and if exporters can't sell their products, that would be cause them a problem," Banthoon said.

However, he believes domestic politics are not a risk factor.

"I don't see any risk [on the political front]. They [the new government] have gone through the correct procedure [for democratic change]," Banthoon said.

The US Fed cut the fed funds rate by a half point, just one week after a 0.75-percentage-point cut on January 22. The move was aimed at allaying fears about the strength of the world's biggest economy.

The US economy grew by just 0.6 per cent in the last three months of 2007, which resulted in growth of 2.2 per cent for the entire year, the lowest rate since 2002.

The local market is worried that the Fed's aggressive move indicates the world's largest economy has slipped into recession. This would contribute to sluggish exports and volatility in financial markets, leading to  further baht strengthening.

The Fed move pushed Asian currencies higher.

The baht yesterday closed at a new high at 33.02 per dollar, moving between 33.00-33.04 during the day.

The main Stock Exchange of Thailand index welcomed the Fed move, closing at 784.23, up 20.75 points.

Aside from the depreciating dollar, Thailand's current account - the broadest measure of trade and services and transfer accounts - mainly contributed to the baht's strength.

It recorded a historical surplus of US$14.92 billion (Bt487 billion) last year - 6 per cent of gross domestic product - compared with $2.2 billion or 1 per cent of GDP in 2006.

Titanun said the BOT could not forecast how much the sub-prime crisis would adversely affect exports.

Exports to the US shrank by 1.7 per cent and 9.1 per cent in the second and third quarters respectively of last year, before picking up to grow by 5.3 per cent in the final three months.

They contracted by 1.2 per cent for the whole year, compared with 14.4-per-cent growth in 2006.

Exports to the US ranked third among the Kingdom's trading partners, at 12.6 per cent of the total last year. The US took 15 per cent of all exports in 2006, making it second after those to Asean countries.

Titanun said intra-regional trade and new export markets, such as Middle Eastern countries, played an increasingly important role in the country's overall trading picture. 

Anoma Srisukkasem,

 Somruedi Banchongduang

 The Nation