Bank of Thailand keeps interest rates on hold despite floods

| October 19, 2011

The Bank of Thailand has opted to keep interest rates on hold at 3.5%, despite the worst floods the country has seen in decades which are set to hamper growth.

Thailand, which is South-East Asia’s second largest economy, is expected to see growth of just 2% this year as a result of flood damage, compared with an earlier forecast of 4%.

Meanwhile, it was the first time this year that the central bank kept interest rates unchanged this year, ending a series of hikes since 2006.

The floods in the north and centre of the country have killed at least 317 people and damaged farmland and are expected to reduce economic growth after destroying crops and disrupting operations at factories.

In a statement today, the Bank said: “The Monetary Policy Committee noted the severity of the floods, which had already brought about partial halt in some production sectors, and would substantially curtail economic growth in the remaining part of the year from previously projected.

“With the floods not yet over, their impact on the economy was not fully evident.”

Figures recently revealed Thailand’s inflation eased slightly to 2.92% after surging in August to the fastest pace since 2008.

Inflationary pressures are rife in Asia and many central banks have opted to hike interest rates in an attempt to combat rising prices.

Stubbornly high inflation in many Asian economies is posing a serious risk to economic growth.

However, the euro zone debt crisis and sluggish US growth are also impacting on growth and last week, the Washington-based International Monetary Fund (IMF) downgraded its growth prospects for Asia.

The IMF is now forecasting growth for Asia of 6.3% in 2011 and 6.7% in 2012.

This is slightly lower than the 7% growth for both years it estimated in April.

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