beyondbrics

Thailand looks like it could be the next to join the doves, who’ve already popped up in Turkey, Brazil, and most recently Indonesia. On Wednesday, the Bank of Thailand held rates at 3.50 per cent, as expected – but one dissenting voice called for a cut.

Aside from the human cost, the tough thing about floods - like those hitting the country right now - is that they have a double impact on the economy: knocking short-term growth while raising short-term inflation. The BoT faces a tough task.

In its statement explaining the decision, the BoT blamed the global economy:

The MPC assessed that the global economic outlook had deteriorated markedly as a result of the impasse over the resolution of the euro area’s sovereign debt problem, which prompted a surge in financial market volatility on concerns that spillovers onto the banking sector and the real economy will become more severe.

Latest U.S. economic data indicated a fragile recovery and market perception of a recession had increased. In Asia, export growth in some countries moderated in line with the global economic slowdown.

As for the floods, which have left 300 people dead, we’ll just have to wait and see, said the bank.

The MPC noted the severity of the floods, which had already brought about a partial halt in some production sectors, and would substantially curtail economic growth in the remaining part of the year from that previously projected…

…with the floods not yet over, their impact on the economy was not fully evident.

It was only 2 months ago that the bank last raised interest rates – a 25bps hike came in August. Back then the BoT said inflation was the main worry. With the finance minister warning that growth could be severely hit by the floods, growth now looks to the priority concern.

Despite an increase in the minimum wage, and more inflationary policies to come from the Yingluck government, previous predictions of a further increase this year now look out of step.

Related reading:
Thailand looks to domestic demand, beyondbrics
Thailand to increase wages despite flood costs, FT
Yingluck’s populist policies: economic cost?, beyondbrics