Large cut in Thailand interest rate announced

The central Bank of Thailand has cut interest rates by 1 percent to 2.75 percent, the largest amount in eight years.

It follows great domestic and political unrest as anti-government protestors have now stopped their blockage of the capital’s two airports which has affected tourism having grounded all flights.

It is clear that the domestic unrest, as well as political instability, has harmed the economy and according to the assistant governor, Duangmanee Vongpradhip, the repercussions are far greater than assessed, especially towards the confidence of tourists.

Following the news of lower borrowing costs, stocks have rallied and it is hoped that this will provide the added impetus necessary for the economy to grow in 2009.

It is the first interest rate cut in over 17 months, however it has been a very turbulent time as of late, given the fact that the Prime Minister Somchai Wongsawat was forced to step down as a result of a court ruling yesterday.

Prakriti Sofat, an economist at HSBC Holdings Plc in Singapore, said that the current unrest has resulted in a huge fall in both business and consumer confidence and until it settles, the cut in interest rates is unlikely to have a huge affect.

The government having warned that growth next year is going to be minimal is likely to hit by reduced tourism, coupled with the fact that the stimulus package is unlikely to make an immediate difference.

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