Thailand cuts interest rate as political strife compounds weakening outlook for growth

BANGKOK – Thailand’s central bank unexpectedly lowered the cost of credit Wednesday as escalating protests to topple the government add to pressure on the economy.

The Bank of Thailand said it lowered its policy interest rate by a quarter percentage point to 2.25 per cent, hoping to stimulate lending and investment.

Flag-waving protesters vowing to topple Prime Minister Yingluck Shinawatra took to the streets of Bangkok for a fourth straight day Wednesday. They are threatening to occupy every government ministry after invading the Ministry of Finance and turning it into an ad-hoc protest headquarters.

The central bank said in a statement that the “ongoing political situation” could compound existing weaknesses in Southeast Asia’s second-largest economy. Business confidence is fragile and government plans for $69.5 billion of spending on high speed rail and other transport infrastructure have been delayed by legal challenges.

Thailand’s third quarter economic growth was weaker than expected and a recovery in exports has not gained traction, the bank said.

Known mainly for its southern resort islands and high quality rice, Thailand is also a manufacturing base for electronics manufacturers and several global automakers, including General Motors Co. and Toyota Motor Corp.

A Thai tourism official said the protests have deterred 300,000 tourists so far at a cost of half a billion U.S. dollars. Thailand’s visitor arrivals totalled 22.3 million last year.

Protest leaders say they want to replace the government with a non-elected council to eliminate the political machine of Thaksin Shinawatra, who was ousted as premier in a 2006 coup following months of street protests against corruption and patronage politics.

Thailand’s current prime minister is Thaksin’s younger sister, who led her party to a landslide victory in 2011 elections.

In cutting interest rates, the central bank was taking out insurance to buffer the economy from possible greater fallout, said Sin Beng Ong, head of Southeast Asian economic research at J.P. Morgan.

If the protests turn violent, it would lead to greater uncertainty about the longevity of the government and further hurt growth, Ong said.

Earlier this month, Thailand’s economic planning agency cut its growth forecast for this year to 3 per cent from 3.8-4.3 per cent predicted in August.

The Thai stock market was boosted by the interest rate cut, with the SET index closing up 1.1 per cent.