The central bank's Monetary Policy Committee (MPC) yesterday trimmed its one-day repurchase rate 25 basis points to 4.5 per cent amid a continuing slow-down in domestic demand and speculation the cut might even be as deep as 50 basis points.

Siam Commercial Bank said it would shave 25 basis points off not only deposit rates, but also loan rates - the first large bank to adjust its loan rates. Other large banks have touched only fixed-deposit rates.

Bank of Thailand (BOT) Assistant Governor Suchada Kirakul said the MPC had also considered a 50-basis-point move but that the meeting rejected the choice, because it realised the economy was slowing down at the same pace as at its last meeting, while inflation continued to decline.

She was optimistic, saying private consumption and investment would grow as projected at 3.5-4.5 per cent and 4.5-5.5 per cent, respectively. Declining interest rates and oil prices and rising farm income will help bring domestic demand back on track, despite negative factors like the turbid political situation.

"It also depends on consumer and investor confidence. But the recovery of financial sentiment on the back of lower interest rates and the baht level will help encourage investors to upgrade their equipment," she said.

However, domestic demand in January painted a gloomy picture after the New Year Eve bombs, as the private investment index contracted 0.6 per cent year on year, while the Private Consumption Index grew a slight 0.1 per cent, said Amara Sriphayak, a senior director at the BOT.

The Business Sentiment Index was 43.9 in January, down from 45 last December, due to the bombs in Bangkok, although looking forward three months increased to 52.

New commercial-vehicle sales declined 27.7 per cent, real imports of capital goods were down 4 per cent and cement sales dropped 0.5 per cent. But domestic machinery sales grew 8.9 per cent and construction was up 0.9 per cent.

The export figure has not yet been announced, but the central bank expects exports will have grown at a satisfactory pace. Suchada said the export forecast remained intact despite the global economy cooling off, with growth this year seen at 4.2 per cent, down from 5.1 per cent last year.

As inflationary pressures continue to ease, the central bank is keeping its forecast for Dubai oil unchanged at US$51 (Bt1,800) per barrel despite the current price of $57 a barrel.

Suchada said the decreasing return in the money market might spur commercial banks into cutting loan rates after a single cut of deposit rates.

The real 12-month-deposit interest rate stood at 1.88 per cent in January, as the interest rate on loans was above 4 per cent.

Siam Commercial Bank's rate cut, which takes effect today, will reduce its minimum lending rate to 7.5 per cent, from 7.75 per cent before, minimum overdraft rate from 8 per cent to 7.75 per cent and minimum retail rate from 8.25 per cent to 8 per cent.

The bank also cut fixed-deposit rates 25 basis points across the board. However, the bank's rate for three-month deposit accounts with a balance of less than Bt1 million remains at 3.25 per cent.

Bangkok Bank also said it had taken 25-50 basis points off of its fixed long-term-deposit interest rates, effective yesterday. TMB Bank and Bank of Ayudhya will chop their six- to 36-month rates 25-50 basis points today.

Bangkok Bank's six-month rate for balances between Bt1 million and Bt10 million went down from 4 per cent to 3.75 per cent. For more than Bt10 million, it is now 4 per cent instead of 4.25 per cent.

Fixed 12-month rates for less than Bt1 million declined from 3.75 per cent to 3.5 per cent; for Bt1 million to Bt10 million, from 4.25 per cent to 3.75 per cent; and for more than Bt10 million, from 4.5 per cent to 4 per cent. Fixed 24- and 36-month deposit rates went down from 4.25 per cent to 4 per cent.

Anoma Srisukkasem

The Nation