RTTNews - Wednesday, the Thai central bank held its key interest rate on hold, defying expectations for a quarter point reduction and pausing the series of rate cut that begun in December 2008.

The monetary policy committee of the Bank of Thailand retained its policy interest rate at 1.25% per annum following reductions in the past four months. Meanwhile, economists had expected the central bank to make another cut of 25 basis points. In April, the Thai central bank had slashed the rate by 25 basis points, taking the cumulative reduction to 250 basis points.

The central bank said in a note that the rate-setting committee assessed that a number of economic indicators started to show a more moderate contraction while inflation continued to be subdued. Moreover, the impetus from fiscal measures became more evident, with an increasing disbursement rate of public expenditure, which would help shore up economic activities. However, downside risks to economic recovery remained.

Thailand's economy contracted at a record pace of 6.1% in the fourth quarter. Further, negative growth is expected for the first quarter following sluggish export-demand. Finance Minister Korn Chatikavanij and other officials have said the economy will contract in the first quarter, pulling the economy into recession.

In April, the central bank said the economy will contract 1.5%-3.5% in the current year, which was a revision from its earlier forecast of economic growth of between zero and 2% for the year.

According to the assessment of the monetary policy committee, interest rates had been substantially eased. The current policy interest rate of 1.25% per annum was low and would continue to aid the process of economic recovery, the bank said.

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