Will political turmoil in Thailand force the central bank to slash rates?

According to a recent research report by Barclays, the answer is yes.

In a research report dated January 10, Barclays analysts say, “We now expect a rate cut by the Bank of Thailand in Q1 (first quarter of the year), possibly as early as the 22 January MPC meeting, although it may choose to wait for the election results (scheduled for 2 February) to assess whether political uncertainty is likely to dissipate quickly. 

It also notes: “The downside risks to growth have risen, amid ongoing political demonstrations.”

Protests against the current Yingluck Shinawatra-led government have escalated recently. On Monday, protestors poured into the streets to show  their discontent against the government. Opposition groups want to install a new government led by an unelected “people’s council”.

The political turmoil is beginning to take a toll on the economy. As this CNN report notes, the Thai baht has plunged to multi-year lows while exports have tumbled. The tourism industry – one of the mainstays of the economy – has been badly hit as well.

Of course, protests are not new to Thailand. But over the past decade, the Thai economy has been able to quickly — and repeatedly — bounce back from political unrest. That phenomenon has even earned the country a nickname, according to CNBC: “Teflon Thailand.”

The problem this time around: life was already tough for the Thai economy before the protests began. Now, the situation threatens to get even worse.

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