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Two houses agree 2.25% policy rate likely unchanged

Moody's Analytics and TMB Analytics are convinced that the Bank of Thailand will leave the policy rate at 2.25 per cent at its regular meeting tomorrow.

Moody's Analytics said yesterday that the central bank was expected to pause at its first meeting of this year after cutting the policy rate by 25 basis points to 2.25 per cent in November.

"The recent political impasse poses significant downside risks to growth, which could prompt further rate cuts over the coming months as the central bank looks to support the domestic economy," it said in a statement.

Economists remain split on whether the BOT's Monetary Policy Committee will trim the benchmark interest rate or put it on hold. In the "cut" camp, economists take the view that the MPC may want to boost the economy, as political conflicts are killing the market mood.

On November 27, six of seven MPC members made a surprise decision to nip the rate by 25 basis points. TMB Analytics, which was among the houses that predicted the rate cut in November, believes that no further easing is called for at this time.

"The 2.25-per-cent rate is accommodative for economic growth," it said.

"The economic condition looks dull in light of political problems. However, commercial banks' loan growth remains high, against the poor sentiments. It may be too soon to further relax monetary policy, to boost borrowing by corporate and individual borrowers," it said.

The political situation now is less severe than in the first half of 2010, when the emergency law led to bloody clashes. Then, the central bank maintained the policy rate with readiness to slash it, given the global economic recovery and somewhat stable macroeconomic outlook in Thailand. The outlook now is more or less the same.

"We're convinced that the MPC will keep its tool until the economic picture gets clearer" after the February 2 election and after February 17, when the economic indicators for the fourth quarter of 2013 are released.


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