BANGKOK, Aug 29, 2007 (AFP) - The Bank of Thailand on Wednesday fell short of market expectations and left its key interest rate unchanged at 3.25 percent amid easing inflation, which hit a near four-year low last month.
"Inflation was expected to remain low, due partly to private spending that had yet to fully recover, while the risk of higher oil prices moderated compared to the previous meeting," the central bank said in a statement.
The kingdom's inflation rate in July fell to 1.7 percent, the lowest in 43 months, from 1.9 percent in June.
The central bank has cut the key interest rate five times this year in a bid to shore up the country's sagging consumer spending and weaken a strong baht, which has put pressure on growth of exports, the key driver of the Thai economy.
While business confidence remained depressed due to Thailand's ongoing political uncertainty, the bank said some indicators were showing signs of recovery in domestic demand.
"The latest economic factors found that domestic consumption has shown signs of improvement, even though consumer and business confidence has remained fragile," Suchada Kirakul, assistant central bank governor, told reporters.
"Meanwhile, private spending has yet to recover," she added.
The Thai baht, which hit a 10-year-high of 33.2 against the dollar in early July, now traded at around 34.35.
A strong baht makes Thai goods less competitive abroad and cuts the value of repatriated profits.
The central bank last month slashed the key interest rate in an effort to halt the baht's rise, while the army-installed government launched a package of measures aimed at weakening the local currency.
Pornsilp Patcharintanakul, secretary-general of Thailand's Board of Trade, a major business group, said the central bank should have cut the interest rate Wednesday in a bid to stimulate consumption.
"We are worried about a potential economic slowdown. If the subprime loan problems spread to other parts of the US economy, Thai exports to the United States would be seriously affected," he said, referring to the US loan crisis.
The United States is the kingdom's biggest export market with two-way trade reaching more than 30 billion dollars last year, according to US government figures.
The Thai government has expected the economy to grow just over four percent this year, among the lowest in Southeast Asia, while cutting the export growth forecast for the full year to 12.5 percent from 13.0 percent.
