MPC makes further cut in policy interest rate to 2 per cent

It expects the two consecutive instances of this "front-loading measure" to help boost economic growth by lowering financing costs and putting business and consumer confidence back on track.

Economic growth will likely be a low 0.5-2.5 per cent, due to a significant slowdown in the growth of industrial economies, which will hit the Kingdom's exports hard.

Private consumption and investment will remain weak, because the effects of the government's new economic-stimulus package will take some time to materialise - about the second half of the year.

The minutes of the MPC meeting cited a contraction in Thai exports, softening domestic demand and delayed fiscal stimulus as perhaps tilting the balance of risk unevenly to the side of growth.

"While we don't think lower policy rates will be a 'magic bullet' to dispel these threats to growth, easing of the policy rate could provide an interest-rate environment that would allow credit demand and supply to lead to favourable credit outcomes while discouraging household savings via real interest rates," Citigroup said in a report yesterday.

The MPC signalled that an improving political situation would "enable the government to implement its economic-stimulus measures going forward".

"Clearly, policy-makers have signalled the urgency of having the fiscal-stimulus programme cushion downside risk to growth. While easing the rate will make a definite contribution, the effect will not be the same as having a stronger fiscal-spending intervention," Citigroup said.

"We continue to expect the overnight rate to drop to 1.5% as a fitting end to the rate-tightening cycle. There is an increasing likelihood that this will come in the next scheduled MPC meeting on February 25."