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Bank of Thailand drops rates as global economy slows pace

BANGKOK -- Thailand's central bank cut interest rates for the first time in nine months Wednesday as it looks to support the country's manufacturing sector and fight the effects of a global slowdown.

The Bank of Thailand's surprise 25 basis point reduction to 2.75 percent is the first since January as the crucial industrial sector foundered following devastating floods just months before.

Assistant Governor Paiboon Kittisrikangwan said the Bank's Monetary Policy Committee believed the move was warranted to boost domestic demand, with Thai inflationary pressures low and the world economy at “high risk.”

“Overall, the Thai economy continued to expand in the third quarter of this year, but export and production for export are clearly affected by the global economy,” he said in a statement.

Analysts from Capital Economics said that while the move came as a surprise a cut had been expected next month.

“A key reason is that the manufacturing sector's recovery from last year's floods has succumbed to weak global demand,” said Asia economist Sukhy Ubhi.

He said while manufacturing output and exports both grew year-on-year in early 2012, they are “once more falling at around a double-digit pace.”

“This bodes ill for Thailand, given that manufacturing accounts for around 40 percent of its economic output,” he said, adding that there were “tentative signs that export weakness is feeding through to domestic demand.”

Thailand's economy rebounded sharply after suffering a double-digit contraction in the wake of the kingdom's worst floods in decades, which swept across the country killing hundreds of people, deluging thousands of homes and disrupting global supply chains.

Gross domestic product rose 4.2 percent in the second quarter of 2012 compared with a year earlier, after a 0.3 percent increase in the first three months of this year.

Policymakers will meet again on Nov. 28 for their last meeting of 2012.

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