Bank of Thailand to slash rates as deflation looms

* What: Bank of Thailand interest rate decision

* When: Wednesday, Jan. 14, at 2:30 p.m. (0730 GMT)

* Second big rate cut in two months on deflation risk, weak growth outlook

BANGKOK, Jan 8 - The prospect of deflation and Thailand's fast-deteriorating economy should prompt another big rate cut by the Bank of Thailand next week after its surprise one-point cut in December, a Reuters poll showed on Thursday.

Seven of the 11 economists in the poll expected the central bank to cut its one-day repurchase rate by 50 basis points to 2.25 percent. Two predicted a 75 basis point cut and two forecast another 100 basis point reduction.

The economists forecast the rate would fall to a median 1.25 percent by mid-2009 and 1.00 percent by the end of this year.

"We expect the spectre of deflation will force the Bank of Thailand to accelerate monetary easing," ING said in a research note to clients this week.

The annual inflation rate fell to a six-year low of 0.4 percent in December from 2.2 percent in November, and analysts expect it to slip into negative territory in some months during the first half of 2009.

"Asian central banks have been surprising on the aggressive side, including Indonesia, India and Taiwan. I guess they are getting pretty nervous," economist David Cohen of Action Economics in Singapore said.

"Many of them want to get it out of the way. It really looks like the economic picture is going to get pretty grim for the first quarter," he said.

With Thai exports feeling the effect of the global economic downturn, the central bank has told the government it expects economic growth to ease to 0.5-2.5 percent in 2009, the slowest in a decade and down from about 4.0 percent in 2008.

"We think it is likely that the BoT will frontload the easing at its meeting next week with a possible 100 basis point cut," Goldman Sachs said in a note.

"But the impact of further monetary easing will need to be supported by greater stability on the political front for it to be an effective boost to growth," it said.

Prime Minister Abhisit Vejjajiva, who took office in December after months of political unrest, has promised aggressive stimulus measures to stop deflation taking hold.

He inherits an economy hit by a collapse in global demand and the fallout from a week-long airport blockade by protesters in late November that hurt the vital tourist sector. Forecasts of economists on BoT's 1-day repo policy rate:

Jan 14 mid-2009 end-2009 Action Economics -50 bps 1.00% 1.00% Capital Nomura -100 bps 1.00% 1.00% DBS Bank -50 bps 2.00% 2.00% Goldman Sachs -100 bps ~ 1.00% Kasikorn Bank -50 bps 1.00% 1.00% Phatra Securities -50 bps 1.75% 1.75% SCB Securities -50 bps 1.50% 1.50% Siam City Research -50 bps 1.00% 1.00% Stanchart -75 bps 1.00% 1.00% Tisco Securities -50 bps 1.75% 1.75% UBS -75 bps 1.50% 1.00% ------------------------------------------------------------ MEDIAN -50 bps 1.25% 1.00% HIGH -100 bps 2.00% 2.00% LOW -50 bps 1.00% 1.00% ($1 = 34.91 baht)