May 21, 2009
BANGKOK (AFP) - The Bank of Thailand defied expectations to keep its key interest rate unchanged at 1.25 percent on Wednesday, saying the current rate was low enough to support recovery.
The bank's Monetary Policy Committee (MPC) said the four cuts since December had done enough to spur the economy, which it expects could shrink by as much as 3.5 percent this year.
Prime Minister Abhisit Vejjajiva has said the contraction could be as great as five percent.
But the decision to freeze rates surprised the financial market which mostly expected a further cut of 25 basis points.
"The global economic crisis has weakened Asia's core economies, but the international money market is gradually stabilising," said the Bank of Thailand in a statement.
It said national fiscal stimulus packages had buoyed the region's economies, which would also help Thailand recover.
The Thai economy was shrinking only at a slow pace, it said, and was being helped by a low rate of inflation and a generous fiscal spending plan.
"Thailand's recovery is still at risk but the MPC considers it has relaxed the monetary policy considerably recently and the current policy rate of 1.25 percent is low enough to support recovery," the statement said.
Thailand's economy had been hard hit in recent months by domestic political turmoil that has exacerbated the impact of the global downturn.
The central bank pointed to anti-government protests as a continued risk to the economy.
Demonstrators opposing the previous administration allied to fugitive former premier Thakin Shinawatra managed to shut down Bangkok's airports at the end of last year before a court ruling ousted the government.
Rival protests began this year against incumbent Prime Minister Abhisit, culminating in street riots last month that were only quelled amid a state of emergency and the threat of a further military crackdown.
