For the first time this year, the Bank of Thailand yesterday cut its benchmark interest rate by 25 basis points to 2.5%, acting to cushion against risk to domestic demand after weaker-than-expected first-quarter economic growth.
"Against the backdrop of continued financial stability concerns, the Monetary Policy Committee (MPC) thus voted unanimously to reduce the policy rate by 25 basis points from 2.75% to 2.5% per year," the MPC said in a release.
Anaemic domestic demand weighed on first-quarter gross domestic product (GDP) growth and could hamper overall economic momentum, particularly if there is a delay in the government's infrastructure investment expected to start later this year, said the MPC. Exports are subject to downside risk from moderating growth in regional economies, especially China.
Thailand's first-quarter GDP expanded by 5.3% year-on-year, far lower than the central bank's forecast of 7.1%. Tepid domestic consumption and investment took the blame for the disappointing reading.
Paiboon Kittisrikangwan, secretary of the MPC and a central bank assistant governor, said the 25-basis-point cut is adequate to accommodate economic growth.
The baht's movement has no correlation with interest rates, and the local currency always tracks the external economic situation and capital flows, he said.
Warapong Wongwachara, an economist at TMB Bank, said the 25-basis-point cut comes as no surprise, but the unanimous vote by the seven members was unexpected.
"We earlier thought members from the Bank of Thailand might hold the rate," he said.
"The vote result shows the central bank sees a slowing trend."
Mr Warapong said the rate-setting committee could cut further if yesterday's move fails to bolster economic momentum.
Sethaput Suthiwart-narueput, executive chairman of the Thailand Future Foundation, said the 25-basis-point cut could have a psychological impact on speculation activities but only in the short run.
He voiced doubts that a rate cut of even 50 basis points could boost the country's economic growth or build up a property bubble.