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BOT holds policy rate at 2%, plans to cut growth forecast again

THE BANK OF THAILAND will cut its projection of the country's economic growth for the second time this year but has chosen to maintain the current policy interest rate because of a recent improvement in the political situation and public and private spending.

Paiboon Kittisrikangwan, secretary of the Monetary Policy Committee (MPC), said yesterday that the BOT would officially lower its forecast for growth in gross domestic product this Friday from the March prediction of 2.7 per cent to roughly 1.5 per cent.

This is mainly due to the political uncertainties that weighed on domestic demand and tourism in the first half of the year.

Paiboon said the central bank saw negative economic growth in the first half, at minus-0.5 per cent, and predicted positive growth of 3.4-3.5 per cent in the second half, which brings the growth forecast for the whole year to around 1.5 per cent.

"Growth in the first quarter was much more negative than we had previously expected, and we initially thought of lowering our growth forecast to less than 1 per cent in April. But since May, the economy has improved quite fast, and we expect the numbers to recover in the second quarter. Therefore, we believe the country's GDP will be able to grow by 1.5 per cent this year," he said.

The MPC believes that the economy will recover in the second half because of the return of state spending, increased certainty in the government's policies, and increased private-sector confidence. Since the committee members believe that the economic recovery will pick up pace from the reduced political uncertainties, they decided to maintain the policy rate at the current level of 2 per cent.

"More active fiscal policy and prevailing monetary-policy accommodation should lend support to a sustained economic recovery. Therefore the committee voted unanimously to maintain the policy interest rate at 2 per cent per annum," Paiboon said.

However, despite the increased private-sector confidence that boosted domestic consumption and investment, he said the slow recovery in exports and tourism would continue to pose a downside risk to growth.

Inflationary pressure has also edged higher from the increased prices of cooking gas and processed food, but the effect is not worrisome, as the higher prices have not spilled over to other products and the core inflation rate is still in the middle of the BOT's target range, he said. However, the expected increase in internal demand will put more pressure on the inflation rate in the next period.

Supant Mongkolsuthree, chairman of the Federation of Thai Industries, said the recent increase in private-sector confidence had improved the economy and its effect would be more apparent this month. The injection of money into the economy by the military's ruling National Council for Peace and Order (NCPO) has already boosted the retail market by 10 per cent, he claimed.

He said the acceleration of state spending along with the setting up of a budget for 2015 and the speeding up of approvals of stalled projects under the Board of Investment worth Bt700 billion would help the economy grow by 2-2.5 per cent |this year.


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