Thailand cuts interest rates to boost domestic demand

Thai bahts being counted Thailand has been keen to boost domestic demand to offset any decline in demand for exports

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Thailand's central bank has unexpectedly cut interest rates in an effort to boost domestic demand and sustain growth.

The Bank of Thailand (BoT) cut its key lending rate to 2.75% from 3%.

There have been fears that the global economic slowdown may hurt demand for the country's exports and harm its economic growth.

However, some analysts criticised the move, saying that lower borrowing costs might spur a rise in consumer prices.

They said that domestic demand had been strong in recent times and a cut in interest rates was needed at the moment, not least because Thailand's economy had been growing steadily.

Thailand's economy grew by a more-than-forecast 3.3% in the April-to-June period, as compared with the previous three months.

"We are more concerned than most about the inflation outlook, in particular the feed-through from what has been a fairly prolonged period of above-trend domestic demand," said Robert Prior-Wandesforde, director of Asian economics research at Credit Suisse.

'Reverse the move'

Start Quote

The Bank of Thailand may have to reverse this move, certainly in the first half of next year”

End Quote Robert Prior-Wandesforde Credit Suisse

Thailand has also introduced other measures to boost domestic consumption in recent times.

It has raised minimum wages in various parts of the country, in some areas by as much as 40%.

The government has also announced plans to spend 2tn Thai baht ($65bn; £40bn) on infrastructure projects after last year's devastating floods in the country.

Analysts said that given the strong domestic demand and increased government spending, a rise in consumer prices continued to remain a concern.

They said the central bank could be forced to start raising interest rates in the coming months.

"The Bank of Thailand may have to reverse this move, certainly in the first half of next year," said Credit Suisse's Mr Wandesforde.

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