BANGKOK: -- THE BANK OF THAILAND's 25-basis-point cut in the policy interest rate last week has depreciated the value of the baht by 0.5 per cent and taken the government bond yield curve to the lowest point in six years.
The decline in the bond yield has had the effect of lowering the cost of investment, and the central bank has urged businesses to take advantage of this.
The baht weakened from around 32.30 to nearly 33 against the US dollar after the BOT's Monetary Policy Committee (MPC) cut the benchmark rate from 2 per cent to 1.75 per cent. The yield for government 10-year bond dropped from 2.74 per cent as of March 11 to 2.49 per cent after the cut.
"The baht depreciated because the majority of the market believed that the MPC would maintain the policy interest rate," said BOT spokesman Chirathep Senivongs Na Ayudhya. "But the currency has stabilised now and there is currently no irregularity regarding fund flows ahead of the US Federal Reserve's statement this week."
The Federal Open Market Committee, which sets the US policy rate, is to conclude a two-day meeting tomorrow.
"The current [BOT policy] rate is very supportive, while the interest rate for the government's 10-year bonds is one of the lowest in the region," Chirathep said. "Therefore Thailand's monetary cost is very low … We urge the private sector to invest now when you can get a 10-year loan at an interest rate of around 2.5 per cent, since this an opportunity to expand and increase your competitiveness."
So far two commercial banks, Siam Commercial Bank and Bangkok Bank, have lowered their lending rates after the policy-rate cut.
Land & Houses managing director Adisorn Thananum-Narapool said the lower policy rate was a challenge to the company's plan to issue a new debenture this year. This will cut its interest rate to below 4 per cent.
The company plans to issue half of the Bt10-billion debenture in the first half of this year, and the rest in the second half, he said.
Pruksa Real Estate, which plans to issue a debenture worth Bt3 billion this year, also expects it to carry a lower interest rate than last year, chief operating officer Lersak Chuladesa said.
This is also good news for home-buyers, who will be able to get lower interest rates on their mortgages, he added.
Thai Bond Market Association forecasts Thai companies will issue debentures worth totalling between Bt520 billion and Bt540 billion in this year, dropping 1.8 per cent from last year.
Meanwhile, SCB might consider adjusting its minimum lending rate if other major banks trim their MLRs by only 0.125 percentage point, less than SCB's recent rate cut.
SCB on Thursday became the first bank to lower its MLR and its fixed deposit rate by 0.20 percentage point. On Friday, Bangkok Bank also cut its MLR and fixed deposit rate, but by just 0.125 percentage point.
Krungthai Bank and Kasikornbank, the second and fourth largest banks by assets, have remained quiet over the rate cut.
Arthid Nanthawithaya, senior executive vice president of SCB, said yesterday that if several banks decided to trim their MLRs by only 0.125 percentage point, less than SCB did, the bank would consider adjusting its rates in line with the market.
However, he noted that the policy rate could be cut further as the real interest rate is high and the baht remains strong compared with the currencies of other countries in the region.
He said it was clear to SCB that the Thai economy is still struggling, which has had an impact on retail, small and medium-sized enterprises, and some corporate clients. The bank agrees with the BOT that the rate cut should be a tool to help those sectors.
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