Thailand’s central bank on Wednesday cut interest rates for the first time in two years and also slashed its growth forecasts as the devastating floods and global slowdown weigh on the economy.
The Bank of Thailand reduced the official cost of borrowing by 0.25 percentage points to 3.25 percent, with two of the seven members of the policy board calling for a 0.50 basis point cut, a bank statement said.
The move follows the country’s worst slump in industrial output in October for more than a decade, after the massive floods killed more than 650 people and damaged the homes and livelihoods of millions around the country.
The impact of the flooding on the economy had been “more widespread and severe” than previously anticipated, the bank said.
Europe’s debt crisis and the fragile recovery and “anaemic labour market conditions” in the United States have also added pressure on Asia to shield growth, the bank said.
And it said it could ease policy further if the nation struggles to recover from the floods, assistant governor Paiboon Kittisrikangwan said.
The global economic slowdown coupled with weak business confidence pose a greater risk to the Thai economy than rising inflation, he added.
From July 2010 to August 2011 Thailand had lifted its key interest rate by 225 basis points to 3.50 percent to tame inflation, which currently stands at about four percent on an annual basis.
The bank also revised its 2011 growth forecast to 1.8 percent on Wednesday, down from 2.6 percent previously, blaming the floods – which are still affecting large areas of the country.
However, it forecast 4.8 percent growth in 2012, up from 4.1 percent earlier, as rebuilding work picks up.