“Private consumption and investment are shrinking rapidly,” said Usara Wilaipich, a Bangkok-based economist at Standard Chartered Bank Plc, who predicted Wednesday’s cut. Commercial bank interest rates are a “limitation” for a more aggressive reduction, she said.

Thailand’s exports, which make up 70 percent of gross domestic product, have fallen for four months and the economy may contract this year for the first time since 1998. An escalation in antigovernment protests Wednesday may also dent confidence in the fourmonth-old government’s promise to spend more to buoy demand.

The benchmark SET Index of stocks fell 0.5 percent as of 3:22 p.m. in Bangkok, paring an earlier loss of as much as 1 percent. The baht declined 0.1 percent to 35.49 per dollar, little changed from before the announcement.

‘Political uncertainties’

The Bank of Thailand has lowered the benchmark interest rate by a total of 2.50 percentage points over four meetings in as many months. Prices have been falling since January.

“Political uncertainties may derail the budget disbursement and that will hurt the economy,” Duangmanee Vongpradhip, a Bank of Thailand assistant governor, told a press briefing after Wednesday’s decision. “We have done a lot since December. We have given some strong medicine and we will see the impact of what we have done.”

Central banks across Asia have reduced borrowing costs to stimulate demand as governments unveiled more than $700 billion in spending, tax cuts and cash handouts to kick-start local consumer and business spending.

“In the case of Thailand, we have seen continued deterioration in private consumption and investment,” said Nicholas Bibby, an economist at Barclays Bank Plc in Singapore, who had expected a 50 basis-point cut today. “There could be more cuts coming through, but it is certainly going to be much more gradual and to a smaller extent than we have been seeing.”

Thailand has said it will spend about 1.57 trillion baht (US$44.4 billion) over three years, mainly on infrastructure projects, to help create jobs and spur economic growth. That’s in addition to an earlier 116.7 billion baht stimulus package of public works, training programs, cash handouts and tax breaks.

Source: Bloomberg