Thailand holds rate, sees gradual recovery, 1 vote for cut

    Thailand's central bank held its policy rate steady at 2.50 percent, as expected, saying domestic demand and exports should gradually recover with the current accommodative policy stance supporting economic growth.
    The Bank of Thailand (BOT), which cut its rate by 25 basis points in May amid growing economic risks and a rise in the baht currency, said its Monetary Policy Committee had voted by 6 to 1 to retain the policy rate while one member had voted to lower the rate by 25 points to boost growth.
    The BOT said the Thai economy had "continued to soften in the second quarter, broadly in line with the committee's previous assessment," as private consumption slowed due to waning stimulus from the government's first-car tax rebate and higher household debt.
    Exports from Thailand had also weakened in line with subdued growth in the region.
    "In the periods ahead, domestic demand and exports are expected to gradually recovery, with some risks of delay," the BOT said, adding supply-side constraints may play a part in holding back private investment and exports.
    "Nonetheless, underlying economic fundamentals and accommodative financial conditions should lend some support to growth momentum," the BOT said.

    Thailand's Gross Domestic Product shrank by 0.3 percent in the second quarter following a 1.7 percent contraction in the first quarter. On an annual basis, the Thai economy grew by 2.8 percent in the second quarter, down from growth of 5.4 percent in the first and 19.1 percent in the fourth quarter when growth was boosted by government spending and a favorable comparison with 2011 when extensive flooding hit industrial and agricultural output.
    The BOT said the global economy was showing "signs of gradual improvement," with the U.S. economy expanding and recent indicators pointing to some improvement in China's economy. The euro area continues to stabilize but recovery is weighed down by the financial health of households and corporates.
    "In Asia, domestic demand slowed, and notwithstanding tentative signs of recovery in exports for some countries, exports generally remained weak," the BOT said.
    Inflation in Thailand is continuing to decline with the headline inflation rate down to 2.0 percent in July from 2.25 percent in June, continuing a declining trend since mid-2011 when inflation was above 4 percent. The government forecasts headline inflation of 2.8-3.4 percent for 2013, down from 3.0 percent in 2012.
    The core inflation rate in July was 0.85 percent for a seven-month average of 1.18 percent, within the BOT's target of 0.5-3.0 percent. The BOT forecasts core inflation of 1.7 percent this year, down from 2012's 2.1 percent.
    The Thai baht has weakened since late April, along with the currencies of many other emerging markets and fears of foreign exchange intervention by Thai authorities, after rising in the first months of this year in the wake of Japan's aggressive monetary easing.
    From the beginning of 2013 to late April, the baht rose by almost 6 percent, hitting a high of 28.6 baht to the U.S. dollar on April 26.
    Since then it has dropped by almost 10 percent, trading at 31.77 to the U.S. dollar today, and for the year it is down 3.7 percent.

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