May 18, 2015 / 6:21 AM / 4 years ago

Export fall means 3 percent GDP growth 'a challenge': Thai central bank

BANGKOK (Reuters) - An economic growth rate of three percent for Thailand this year will be a challenge, the country’s central bank governor said on Friday, indicating Southeast Asia’s second-largest economy would expand well below the rate forecast by the government.

Thailand's Central Bank Governor Prasarn Trairatvorakul gestures during an interview with Reuters at the Bank of Thailand in Bangkok, Thailand, May 15, 2015. REUTERS/Chaiwat Subprasom

Thailand has been hit hard by poor demand for its exports, exacerbating the challenge the junta has faced in managing the faltering economy since seizing power nearly a year ago.

“It’s possible to be at that level but it’s going to be a challenge,” Bank of Thailand Governor Prasarn Trairatvorakul told Reuters on Friday, when asked if the country could achieve three percent growth in 2015.

The central bank had said growth would miss its previous forecast of 3.8 percent but not flagged by how much.

Prasarn declined to give a specific estimate for full-year growth, and said a “perfect storm” that hit exports was behind the downgrade.

Exports, equal to more than 60 percent of GDP, fell 4.3 percent on the year in the first quarter and are likely to contract for the third straight year in 2015.

Slower growth among top trade partners, falling prices for agricultural exports and an increasingly outdated electronic manufacturing sector were behind the fall, he said.

The economy should avoid a technical recession and return to growth in the second quarter after contracting in the first, he said.

While GDP in the first quarter was expected to contract on a quarterly basis, year-on-year growth would be around 3 percent, he said.

The BOT still had room to maneuver on rates, he said, even after making two surprise cuts since March and taking the interest rate to 1.50 percent, its lowest level since a record low of 1.25 percent in April 2009.

But Thailand does not need to slash rates to zero as the economy is not in crisis, he said.

Despite slow growth, the junta had put no pressure on the BOT to cut rates again, he said, adding that the military allowed the central bank to operate independently and the relationship between the two was “not hostile”.

“We do our job and they do theirs,” he said.

The BOT next reviews policy on June 10, when most economists expect it will keep rates steady. The central bank is due to release GDP forecasts on June 19.

Last year, economic growth was only 0.7 percent, the weakest pace since flood-hit 2011, as political tension before the coup hurt business activity and sapped consumer confidence.

The BOT is comfortable with the Thai baht THB=TH exchange rate, he said, after it weakened to a level that "was more in line with regional currencies".

The baht stood at 33.57 per dollar on Friday, having touched a near six-year low of 33.85 on Tuesday. The central bank relaxed capital flows to hold down the baht late last month.

Despite falls in prices so far this year, Prasarn reiterated Thailand was not suffering deflation yet.

The central bank plans to seek a bigger quota from China to invest in yuan-denominated assets. In 2011, China had granted an investment quota of up to 7 billion yuan ($1.1 billion) for Chinese debt, and that was fully taken up, he said.

Additional reporting by Pairat Temphairojana and Satawasin Staporncharnchai; Writing by Simon Webb; Editing by Jacqueline Wong

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