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Thailand Central Bank Stays Pat After Two Rate Cuts

The Thai central bank on Wednesday held its key interest rate unchanged after reducing it in surprise moves in the previous two sessions, citing downside risks to the growth outlook.

The Monetary Policy Committee of the Bank of Thailand unanimously decided to maintain the policy rate at 1.50 percent, in line with economists' expectations. The rate is now at the lowest since June 2010, when it was 1.25 percent.

In April and March, the bank reduced the rate in two surprise quarter-point moves. Both decisions were taken on split votes.

"The conduct of monetary policy has thus far eased monetary conditions, while the direction of exchange rate movement has become more conducive to the economic recovery," the central bank said in a statement.

"Nevertheless, the Thai economy remained subject to downside risks, particularly from the global economy. Therefore, monetary policy stance should continue to be accommodative in order to support the economic recovery."

Policymakers said that they will closely monitor Thailand's economic and financial developments, and affirmed readiness to utilize the available policy space appropriately in order to support the ongoing recovery and maintain long-term financial stability.

The Thai economy grew at a sluggish pace in the first quarter as exports contracted amid weak spending, forcing the government to cut its 2015 growth outlook. Gross domestic product rose only 0.3 percent in the first quarter and the growth outlook was lowered for Southeast Asia's second-largest economy to 3-4 percent.

Looking ahead, the economy is projected to improve gradually, but subject to downside risks from slower-than-expected recovery of the global economy, especially China and other Asian economies, the bank said.

Headline inflation is expected o pick up in the second half of the year as the base effect of high oil prices begins to wane, coupled with expected rises in oil and raw food prices.

The bank saw the risk of deflation remaining low, as consumption continues to increase, while the prices of most goods and services still increase or stay unchanged. It also noted that inflation expectations were close to the inflation target.

"With the economy still in a fragile state it is too soon to call the end of the easing cycle," Capital Economics economist Krystal Tan said.

"Overall, while the BoT appears to be taking a wait-and-see approach for now, further data showing that the economy is struggling to gain any momentum would bring rate cuts back on the agenda."

The economist also noted that there was no government pressure for rate cuts this month.

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