UPDATE 1-Thailand slashes rates as protests hit economy

(Adds quotes, detail)

By Kitiphong Thaichareon

BANGKOK, Dec 3 (Reuters) - The Bank of Thailand surprised markets by cutting interest rates by a full point on Wednesday, saying the economic damage wrought by political unrest and the global downturn triggered its first easing since mid-2007.

A rapid retreat in inflation in recent months made it easier for the central bank to slash rates by the biggest margin in over eight years to help the economy, hit by anti-government protests that culminated in an eight-day siege of Bangkok's main airports.

"The political problem is having quite a severe impact on the economy," BoT Assistant Governor Duangmanee Vongpradhip told reporters.

"We hope this rate cut will help boost the economy in the short term," she said.

The rate move, Thailand's first monetary easing since July 2007 and the biggest cut since the central bank adopted its inflation targeting regime in May 2000, brought the benchmark rate to 2.75 percent, its lowest in more than three years.

The baht THB= fell to around 35.52/72 per dollar after the announcement compared with 35.38/40 in morning trade.

Thai stocks .SETI were up 2.87 percent after the central bank decision but that was due mainly to some easing in political tension after anti-government protesters ended their crippling blockade of Bangkok's airports on Wednesday. [ID:nBKK75532]

"It seems the central bank, which usually moves in steps of 25 basis points, has taken inspiration from counterparts around the world who have been taking aggressive action." HSBC economist Prakriti Sofat said. "It seems that BoT is also trying to shore up confidence within the economy given the recent events. It remains to be seen whether it will be successful," she added.

Duangmanee said a sharp drop in oil and commodity prices would ease price pressures through 2009, but dismissed Deputy Prime Minister Olarn Chaipravat's suggestion that Thailand could face deflation next year.

"The impact of fiscal stimulus is likely to be delayed, while domestic political problems are likely to have greater repercussions on economic growth than previously assessed," she said.

(For a graphic on core inflation, click on

here)

NO GROWTH?

Government officials have warned that the country's economy will struggle to grow at all next year, with business confidence and tourism industry hit hard by the protests.

Data on Monday showed an annual inflation rate of 2.2 percent in November, a 14-month low.

The numbers shifted market expectations towards a bigger cut than originally predicted quarter point reduction, but none of the economists canvassed by Reuters on Wednesday predicted a full percentage point cut.

The Bank of Thailand raised rates in July and August after soaring fuel and food costs pushed inflation to a decade high. But a fast decline in inflation allowed the central bank to shift the focus to the economy, which, even before the latest political events, has faltered as export demand dropped due to the global slowdown. ($1 = 35.56 baht) (Writing by Vithoon Amorn; Editing by Tomasz Janowski)