Tuesday, July 21, 2009

Thai rates supportive of economy - central bank

22-JUL-2009 06:19

By Boontiwa Wichakul

BANGKOK, July 22 (Reuters) - Thailand's current policy rate of 1.25 percent is low and is not hindering economic growth, but the central bank could cut the rate again if necessary, a Bank of Thailand deputy governor said on Wednesday.

'The interest rate has come down quite a bit and it is low already,' Bandid Nijathaworn told a business seminar.

'But if the economic picture is weaker than expected, we are still ready to use accommodative policy to help growth,' he said.

The central bank is due to release updated economic forecasts on Friday. In April it projected the economy would shrink 1.5-3.5 percent this year but would grow 1.5-3.5 percent in 2010.

The central bank kept its key interest rate unchanged at 1.25 percent last week for the second straight meeting after cutting it four times since December to help the economy, which is going through its first recession in a decade.

Economists expect the rate to be left unchanged this year or perhaps nudged a little lower if the economy deteriorates, with a rate rise not coming until the second half of 2010 as the central bank reacts to an expected rise in inflation.

'We expect a positive growth rate next year, but inflationary pressure will be higher than this year,' Bandid said.

On the currency, Bandid reiterated the central bank line -- it will keep the baht stable so that it will not hurt the export sector. The baht was steady at around 34.0 per dollar at 0423 GMT.

Bandid said he expected commercial bank lending to increase in the second half of this year as the economy improved and liquidity remained abundant.

The Thai government has launched several stimulus and relief measures to revive the economy and is seeking to borrow 800 billion baht ($23.5 billion) to help finance 1.43 trillion baht in stimulus spending and fiscal deficits over three years.

On Tuesday it asked state-owned banks to raise their lending target by a combined 350 billion baht to 1.25 trillion baht this year to help business after signs that the worst may be over for the economy.

State-run Krung Thai Bank's loan target will be raised by 50 billion baht to 350 billion baht this year.

Six other specialised banks -- the Bank for Agriculture and Agricultural Cooperatives, the Government Savings Bank, the Government Housing Bank, the Export-Import Bank of Thailand, the Small and Medium Enterprise Development Bank and the Islamic Bank of Thailand -- will together lend 300 billion baht more.

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