Louder call for a policy rate cut on May 29, to weaken baht and boost exports
Despite growth of 5.3 per cent in the first quarter, the National Economic and Social Development Board (NESDB) has revised down its forecast for the year.
This points to a further slowdown in economic activity in second half - which raises the odds of an interest rate cut.
Bloomberg's growth consensus for the first quarter was 6 per cent. The lowest forecast belonged to Moody's Analytics, at 3.7 per cent. The research unit noted that while the domestic economy continues to expand at a decent rate, and is supported by robust household and investment spending, exports are struggling because of weak global demand.
The NESDB downgraded its 2013 growth forecast to 4.2-5.2 per cent from 4.5-5.5 per cent.
A majority of Thai and foreign banks are now more convinced the Bank of Thailand's Monetary Policy Committee will cut the policy rate to boost exports when it meets on May 29. Seasonally adjusted exports rose just 1 per cent in the first quarter. And the government is convinced that inflation is benign enough to support a rate cut, while the export sector would benefit from a weaker baht.
In a concerted move, Thai trade representatives yesterday revised down the country's export target this year from 8-9 per cent to 5 per cent, due mainly to weak global demand.
NESDB secretary-general Arkhom Termpittayapaisith said the rise in the baht, from 31 per US dollar in the first quarter last year to 29 currently, had shaved export value by Bt180 billion - and urged an "aggressive" rate cut, to prop up exports. A rate cut would slow capital inflows, which topped US$4.5 billion in the first quarter compared to $2.2 billion in previous quarters. The baht has risen by 2.5 per cent this year.
At a press conference yesterday, Arkhom said that downside risks remained high in the second half - mainly delayed recovery of global economic growth in the first half and delayed recovery of global product prices, baht appreciation, a high growth base in 2012, and a slower rebate for people who bought vehicles under the first-car policy.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong expressed concern yesterday over lower-than-expected first-quarter growth and said this could prompt the year's growth to stay below 5 per cent. However, there was no need to launch any economic stimulus, he said.
Bank of Thailand senior director Mathee Supapongse also admitted that 5.3 per cent growth in the first quarter was well below the central bank's 7 per cent target. Based on the target, the BOT had forecast annualised growth at 5.1 per cent, he said. The official said the BOT would look at the details on what hindered the quarterly figure.
Lower-than-expected growth in the first quarter raises pressure on the central bank for a rate cut. Royal Bank of Scotland said in a research note that said weaker data supported a rate cut of as much as 50 basis points, saying that this would not spur credit growth as feared by the central bank. A rate cut would help the export sector, it said.
Credit Suisse Group and Barclays also expect the Bank of Thailand to trim the policy rate by 25 basis points.
Though weak data supports the rate cut, HSBC economists led by Su Sian Lim, believed that the Thai economy would improve in the quarters ahead due to favourable income tax changes, stable and low unemployment, as well as favourable adjustments in the minimum wage this year nationwide. These "should continue to keep consumption and investment well-supported".
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Article source: http://www.thethailandlinks.com/2013/05/21/weak-data-raises-odds-of-rate-cut/
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