BANGKOK Prime Minister Yingluck Shinawatra suffered a setback on Wednesday when a court ruled that legislation aimed at raising billions of dollars for investment in ambitious infrastructure projects was unconstitutional.
The central bank, signaling its concern about the economic impact of prolonged political instability, cut its benchmark interest rate by 25 basis points to 2 percent, a rate last seen in 2010.
Protesters trying to bring down Yingluck and end what they see as the pervasive influence of her brother, ousted former premier Thaksin Shinawatra, have been on the streets for four months.
The confrontation is unnerving consumers, with confidence at a 12-year low, and hurting tourism. Automakers, property firms and hotels in Southeast Asia's second-biggest economy are all facing lower spending.
The government had hoped investment of 2 trillion baht ($62 billion) in infrastructure, including high-speed trains and mass-transit systems for Bangkok, would support the economy for years to come.
The government had wanted to fund the projects off-budget, meaning less scrutiny by parliament, but the opposition took the plan to the Constitutional Court.
The court ruled that legislation on the funding, already approved by the upper house Senate, was unconstitutional, court officials said.
Yingluck said it was regrettable that the country had lost an opportunity to develop its infrastructure.
"We tried our best," Yingluck told reporters. "This was an opportunity for everyone, not a government project or for anyone in particular, but an opportunity for the country which has lost momentum."
After the ruling, the opposition said it planned to file a petition with the country's anti-corruption agency, seeking the impeachment of Yingluck and the cabinet for breaching the constitution by drafting the bill.
The anti-government protests are the latest phase of a conflict between the urban, middle-class supporters of the royalist establishment and the rural supporters of former telecoms tycoon Thaksin, mostly in the north and northeast.
Thaksin's supporters say he was the first Thai political leader to keep campaign promises to help the poor.
His critics, who say he is the real power behind his sister's government, say he used taxpayers' money on wasteful populist policies that have allowed him to commandeer a fragile democracy.
Twenty-three people have been killed, most in shootings and grenade blasts, since late November.
Hours after the court ruling, the central bank cut its benchmark interest rate by 25 basis points in a bid to spark growth. The cut had been expected but some analysts questioned its impact.
"We don't think that today's rate cut will do much to boost GDP growth," said Gundy Cahyadi, an economist with DBS Bank in Singapore. "The fall in consumer confidence has been triggered by the political stalemate and we doubt that rate cut will do anything significant to turn that around."
With the army not intervening to oust Yingluck, as it did in 2006 with a coup against Thaksin, the protesters are hoping the courts, widely seen as supportive of the anti-Thaksin establishment, will eventually bring her down.
Yingluck faces various legal challenges, with one of the potentially most serious being a charge of dereliction of duty brought against her by an anti-corruption agency over a rice-subsidy scheme that has left many farmers unpaid.
That case was due to resume on Friday but a lawyer for Yingluck said she was seeking a postponement to allow more time to examine the charges. The anti-corruption commission said it would consider the request.
(Writing by Robert Birsel; Editing by Alan Raybould and Jeremy Laurence)