Wednesday, Thailand's central bank reduced its key interest rate further, to stimulate the contracting economy.

The monetary policy committee, or MPC, of Bank of Thailand lowered the policy interest rate by 25 basis points to 1.25%. Economists had expected a reduction of 50 basis points. The central bank trimmed the interest rate by a cumulative 2.5 percentage points since December 2008.

The MPC said the severity and duration of the crisis remained highly uncertain, which would affect the Thai economy through a contraction of exports, while private domestic demand remained weak. However, the central bank expects public spending through the government's fiscal stimulus measures to set off the softening in private demand to some extent.

Consumer prices fell 0.2% in March from the previous year, after falling 0.1% in February. At the same time, the core CPI, which excludes fresh food and fuel, increased 1.5% in March, slower than the 1.8% rise in the previous month.

The central bank had said it expects Thailand's headline inflation to average within the range of minus 1.5%-0.5% in 2009.

Looking forward, the MPC assessed that risks to growth remain in Thailand. Headline and core inflation continued on a declining trend, allowing monetary policy to be eased further to support the economy and stimulate the recovery going forward.

Thailand's economy contracted at a record pace of 6.1% in the fourth quarter, compared to the previous quarter. In 2008, the economy grew 2.6%, down from 4.9% recorded in 2007. The country's state planning agency forecast 2009 economic growth to be in a range of 0% to minus 1%.

The Asian Development Bank forecasts the Thai economy to decline 2% this year, following 2.6% growth in 2008.

On March 23, Finance Minister Korn Chatikavanij said the economy could contract 3% this year. But, the economy may shrink 8%-9% this year if the government does nothing and the number of unemployed may increase to 2 million.

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