Bank Of Thailand uses the knife and slashes interest rate by 100 basis points

dildo

The Monetary Policy Committee or MPC has decided to lower the one-day repurchase rate which is the policy interest rate by 1 percent per annum, from 3.75 percent per annum to 2.75 percent per annum.

The reduction is beyond the market expectation that the rate would be cut only by 25 to 50 basis points.

The Bank of Thailand Assistant Governor of the Monetary Policy Group, Duangmanee Vongpradhip, reasoned that the worldwide financial recession has led to a significant and larger than expected slowdown in growth in industrial economies, compared to the previous assessment. (TOC)

“Larger than expected slowdown”… sure. They always come after the battle… What a bunch of clowns.

Anyway, what to think about this move (the largest single cut, ever in Thailand) ? The BOT follows all the other central banks in the world. It’s an inane run toward the zero interest rate Wonderland.

Will it change something ? In Thailand, probably not. For several reasons :

-to “stimulate” something that is already dead is nonsensical. People, businesses are afraid… lower interest rates won’t convince them to buy more stuff (a house, a car etc.). The effect will be marginal.

-the banks won’t be willing to lend more at discount prices, when precisely the risks are increasing. Like everybody else, they want to keep their margins.

-it makes no sense to lend more… to who and to do what ? We are (just at the beginning) of a full blown, freaking, bloody, worldwide, recession !

I mean even if they give free money, investors, businesses wouldn’t be able to use it ! No customers anymore. Finished. Basta. Close the curtain.

Exports are going down, GDP is going down, unemployment will rise. People do not buy more when they have less !

-we could say that this cut is a gift to the banks (because we are talking here about the repurchase rate, rate that the banks pay, not of course individuals and businesses).

-we can’t even say that this cut was designed to weaken the currency for instance (to “stimulate” the exports…) . Because, ALL THE CENTRAL BANKS are doing the same (BCE will cut tomorrow). The THB is not moving.

-So to summarize : it’s a fart. A wind. It will please a few people, save the arse of a few friends (deeply in debt, so they will be able to refinance their smelly debts), that’s all.

So much for the “stimulus” (and God knows that they’ve already tried in Thailand, look here).

So much for this insane “dildo economy”…

[personal note : I did it ! I’m very proud. Since the creation of this blog, I’ve managed to put one picture of a naked girl. And today, apotheosis, a picture of a sex toy… The doors of the Porn Paradise On Internet, with millions of visitors per day, are open. For a blog about economy and politics in Thailand, you’ll admit that it’s an achievement, no ? 😉 ]

UPDATE DECEMBER 4

SCB is the first bank to follow… in a special manner. 😉

Siam Commercial Bank becomes the first bank to cut its deposit rates by as much as one per centage point, effective on Monday, after Bank of Thailand reduced the policy rate by 1 percentage point yesterday.

The bank’s prime lending rate will be cut by 50 basis points to 6.75 per cent, and fixed deposit rates will be trimmed by 50 basis points to one percentage point, according to the bank’s statement today. (Nation)

You see, banking in Thailand is a sweet business ! 😉

25 Responses to “Bank Of Thailand uses the knife and slashes interest rate by 100 basis points”


  1. 1 paperback 3 December 2008 at 11:59 am

    On a very personal level the current crisis might become a great stimulus to buy some real estate in Bangkok if prices are dropping to unheard of new lows. Think positive!

  2. 2 ThaiCrisis 3 December 2008 at 12:02 pm

    Ah paperback is another candidate for the “stimulation”.
    😉

    What you are saying is exactly the proof that the “dildo policy”, in such a recession, can’t work.

    People will wait. Wait for lower prices…

    It’s the deadly trap of deflation.

  3. 3 paperback 3 December 2008 at 12:10 pm

    Yup, I fully agree 🙂 I didn’t say it would stimulate the economy, it would only stimulate my personal willingness to buy if things are getting cheap. I wonder when my sister-in-law will start to feel the pressure, she owns an apartment block downtown. So far the rents are still coming in…

  4. 4 fox2night 3 December 2008 at 12:27 pm

    THANK YOU ! you saved my day ! you got me !! i’m still smiling 🙂

    amazing, this is thailand

  5. 5 chinesethai 3 December 2008 at 12:27 pm

    I think it is still better than doing nothing for BOT. I have to agree with paperback this time. I don’t believe it is all that bad. There are still opportunities out there. Close to my house, a well-known shopping mall chain is constructing a compact-sale lifestyle shopping mall. However, they are not in rush to finish it as they expect the construction material prices to go down further. They are smart. So I don’t think the thirst to invest has totally been evaporated. People are just anxiously waiting for the bottom, so am I.

  6. 6 ThaiCrisis 3 December 2008 at 12:33 pm

    ->For2night : no…. It’s not Thailand only. This is why it’s really scary.

    It’s the WHOLE GLOBE ! Planet Earth is going crazy with such policies. 😉

  7. 7 chinesethai 3 December 2008 at 12:34 pm

    (correction)
    “compact scale”

  8. 8 fox2night 3 December 2008 at 12:47 pm

    your blog is awesome – i read it every day – continue the good work

    how about a paypal donation button !?

  9. 9 johnj 3 December 2008 at 12:58 pm

    thai crisis
    does this mean my ( and wife’s) housing loan repayments will reduce?
    the loan is 2 yrs old , so past fixed rate period and is presently at MLR-1 % ( about 6.25)
    the loan is with UOB bank
    on a house in thailand over 10yrs
    reason why i ask is that when recently the rate went up ( as reported on in the media ) by 0.25% they did not change our house loan rate

    do they always pass on the benefit to the customer or just maybe use this opportunity to increase their profit margins by 1% this time

    by the way– i’ve been coming using this site for 2yrs to get info– thanks very much– great work- have spread the word many times to others to check out your blog- keep it up!!!

  10. 10 ray 3 December 2008 at 1:10 pm

    the only time real estate is cheap in bangkok is when forclosure occurs. or when soemone mortgages their property with a loan shark and cannot repay. regarding the auctions banks holds , the prime locations are already gone ( inside job,tea money etc).but with loan sharks u really get good deal, the ony catch is it will be a all cash buy-out. not time ot get loans approved by banks.

    also watch out !! the rate cut is 100 pnts. those paying bank loans their interst will not go down 1000 pnts. it will be a bit more profit for banks. regarding thai banks lending , u can forget about it. in samui i have talked to a few big guys at the bank and the already have orders to reject all loans and overdrafts applications since sept..

    this recession is going to be brutal!!! i am looking at hyperinflation next year. BUY GOLD!

  11. 11 fall 3 December 2008 at 1:47 pm

    Monetary policy, bah! Please dont get me started!
    Half the GDP are export and another half suffer from a freaking-global-downturn. Going by the textbook to raise opportunity cost for investment is dumb, and too late to take effect. And as you said, effect of open market operation just diluted when everybody play the same card. All it’s good for is just a big one-shot headline on lower inflation…

    We need fiscal policy, right here, right now! Increase domestic consumption and cut that dumb, big-ass military budget which just mean import a brand new jets for show.

  12. 12 thaioutsidein 3 December 2008 at 2:00 pm

    i think it is a good move, in the middle of very challenging . i said it is a good move because inflation is no longer a major concern.

    as i said a few months back, inflation rise in ’08 was only driven by commodities bubble. now the bubble has ended, and inflation went down globally, dramatically.

    in the u.s. and many developed countries, central banks are now worried about risk of japan type of long term deflation and negative growth. cutting interest rate, lowering corporate taxes, increasing private sector productivity are the only three ways to counter the trend.

    for thailand, confidence is definitely going away, esp. after the airport closure. but having to pay 1% lower interest does give slight additional incentives for companies to invest, and consumers to spend.

    i heard from a friend working in an alternative investment fund in hk, that there are people out there are looking into picking up cheap thai assets in ’09. they are seeing ’97 type of opportunities. but FDI and tourists arrivals will definitely tank. GDP will also slow, but not negative.

  13. 13 thaioutsidein 3 December 2008 at 2:02 pm

    also, my educated guess is that baht will tank in ’09. no tourists, slow exports, and very low interest rate.

    i am converting all my baht to yuan or greenback 🙂

  14. 14 Insanity 3 December 2008 at 2:17 pm

    Correct “It’s the WHOLE GLOBE ! Planet Earth is going crazy with such policies.”

    Most people sense that the financial crisis that has now been escalating for 15 months, and the “sudden” collapse of the real economy, are only the beginning. These were just the first waves of the storm, but the really powerful tsunami wave is coming toward us. The catastrophe could still be avoided, but that would require responsible figures in governments and financial institutions to admit their mistakes and accept competent help.

    But here we have a problem: Those who now should be taking decisive measures to defend the common good are still not ready to face up to the origins of the crisis.

    The communiqué of the G-20 summit in Washington on Nov.15 admitted that “risks in the financial markets were underestimated.” But it is clear from all the ineffective statements and that followed, as well as the so-called experts, governments are still not willing or able to take the necessary steps to reorganize the financial system.

    Derivatives are the main problem

    Panic is setting in; investors in November massively withdrew their deposits from hedge funds and financial institutions, in turn, forcing these to sell whatever assets they could. This generates a double feedback-loop: Since the depression is coming to a head, asset prices are falling—most of them having been bought on credit in the first place—which further stresses the balance sheets of banks and hedge funds, which therefore curtail their lending even further. These various intensifying phases of “deleveraging” of so-called structured paper are the main problem.

    The volume of derivative contracts outstanding was said to be, according to the Bank for International Settlements, $675 trillion at the end of 2007; the French magazine Marianne recently gave the figure as $1.4 quadrillion, but it could be much more. If an attempt is now made to honor what these bankers themselves call “toxic waste,” then, on the one hand, this leads to hyperinflation, since more and more liquidity is pumped in to try to back up the virtual values; but at the same time, it brings on deflation, since the collapse of the real economy leads to falling prices.

    This is the reason for the breathtaking speed of collapse of the real economy worldwide—the auto sector, the steel industry, petrochemicals, construction, shipping, etc., etc. And it is a global phenomenon: The U.S.A. is plunging into depression; China’s American export market is collapsing; the Chinese economy is falling apart; China is no longer buying textile machinery in Germany; shipping is collapsing, since in the four or five weeks that it takes a ship to go from Europe to Asia, conditions have dramatically changed, so that the letters of credit are no longer accepted, etc., etc.: a downward spiral to … !

  15. 15 ThaiCrisis 3 December 2008 at 3:18 pm

    -johnj : Yes I think you’ll benefit of it. With a cut of such amplitude, the banks will have to pass it.

  16. 16 ThaiCrisis 3 December 2008 at 3:21 pm

    -thaioutsidein : very bad idea with the RMB ! The chinese authorities are panicked and will do whatever it takes to depreciate their currency in order (as always) to “boost” or stimulate their exports… It’s the name of the game since so many years, it’s the only policy they know.
    so they are lowering their rates too, and they cheat with the exchange rates. Easy to do for them… 😉

    Dec. 3 (Bloomberg) — China’s yuan traded near the lowest in more than five months, after falling by the 0.5 percent limit from the daily reference rate, on speculation policy makers favor a weaker currency to support exports. Bonds rose. Link here

  17. 17 Mark Lamerton 3 December 2008 at 3:39 pm

    Great stuff! I checked out your original post “Eros on line…” reminds me of the time when the great overweight, overpaid, crime suppressing Thai police detained – several times – Nong Nat, the Thai model turned porn star who made an interesting DVD in Singapore with a Japanese man.

    Interestingly, the police needed to watch the video many times and interrogate Nong Nat in detail before they announced she was guilty of making a porn video. I understand this, because the idea of sex for money is unheard of in Thailand, especially for the police.

  18. 18 ThaiCrisis 3 December 2008 at 3:46 pm

    “….especially for the police”, as we all know.
    😉

  19. 19 Insanity 3 December 2008 at 4:39 pm

    Sticking to the world theme.

    The breakup of the present world monetary system began July 2007, with what was called by some people a “subprime crisis.” It was never a subprime crisis: The idea that a real estate bubble exploded and had a chain-reaction on the world is nonsense. That didn’t happen: It happened the other way around.

    The system which was to explode, or implode, just broke loose at its weakest point. But the problem lies, today, not in the real estate area or otherwise; it lies in financial derivatives. The financial derivatives system of the world is what is in the process of collapsing. And the financial derivatives system totals to over $1 quadrillion U.S. dollars in estimated value! And this is the great speculative bubble which has built up from 1987 on, under Alan Greenspan and others. This is the bubble that is now collapsing.

  20. 20 ThaiCrisis 3 December 2008 at 5:17 pm

    Of course. The “real estate bubble” was a mere symptom of the crisis. Absolutly not a cause.

  21. 21 Insanity 3 December 2008 at 5:58 pm

    johnj/Ray

    Over the past six weeks, the Bank of England has lowered its interest rates twice, first by 0.5% and then by 1.5% (& maybe tomorrow a further 1%), but so far the banks have refused to make loans at the lower interest rate, apparently because they need the liquidity to deleverage their own derivatives positions. I imagine that the Thai banks are in a similar position.

  22. 22 Bob 3 December 2008 at 11:09 pm

    Ray, Where can you find some of these “good deals” where people sell a condo fast because loan sharks are involved?
    Bob

  23. 23 Young Royal 4 December 2008 at 12:51 am

    I hear a lot of people taking an interest in buying in Thailand and wondering when it’s going to get cheaper. I live in Thailand half of very year but i’m still going to buy in the UK.

    I have just saved enough to buy a house and the markets collapsed. So i’m am going to wait and see what happens. Best guess is 2010 to take the plunge.

    The properties i’m looking at have already fallen about 30,000 pounds on the 200,000 pound houses. They are going to fall a lot more.

    I feel that this would be a far wiser investment than buying in Thailand. I can rent it out and still live in Thailand. But by buying in the UK, it’s my country, my laws, my people. I also feel that the price when it does start to rise will always return more than the rise on a Thai Property.

    I thought this was an interesting article,

    http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=442516&in_page_id=3

    This is like a cleansing forest fire, but before new growth starts again.

    Like your work Thaicrisis, what inspired you to start this?

  24. 24 olivier 4 December 2008 at 9:54 am

    I agree with paperback, since i want to buy a house or condo, a thai deflation is opportunity. I am just waiting a little bit more : the devaluation :-p

  25. 25 ray 5 December 2008 at 1:41 pm

    yonungroyal… that is a greta plan, u will be set for life. rents in thaialnd will be cheap for a few years to come.

    bob, these are people who gamble on football matches, or people who run factories and have liquidity problems.
    its a known fact that thai peope pay very high interests when they borrow money out of the system. i have know people to pay up to 3% per month with collateral with the lender. u have to know these lenders or have friends who know these people.
    WARNING when buying land/property in thailand please please take the chanote/title deed to the land dept to verify its authencity. there are lots of frauds going around with one property mortgaged with 2 or more lenders. so always check it out and go yrself to the land dept.


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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.


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