Thai, Malaysian Growth Slow, Heralding Caution in Rate Moves

Thailand and Malaysia’s economies expanded the least in three quarters, adding to signs of a moderating Asian rebound that may prompt policy makers to slow interest-rate increases.

Gross domestic product in Thailand, Southeast Asia’s largest economy after Indonesia, increased 6.7 percent in the three months through September from a year earlier, after growing 9.2 percent in the second quarter, the government said yesterday. Malaysia’s economy expanded 5.3 percent last quarter, compared with an 8.9 percent rate in the previous three months, its central bank said.

The slowdown in growth backs the decisions by Thai and Malaysian policy makers in refraining from raising interest rates at their most recent meetings to support the economies. While Asia’s growth is still outpacing the rest of the world, sovereign credit woes in Europe have reemerged with Ireland becoming the second euro country to seek a rescue and the U.S. Federal Reserve renewing a plan to buy Treasuries.

“It’s clear that the uncertainties in global demand are weighing on export-oriented Asian economies and we may see the slowdown continue into 2011,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “Policy makers will be more cautious about tightening monetary policy.”

A report this week may show that Philippine growth eased to 7.3 percent in the third quarter from a three-year high of 7.9 percent in the previous three months, according to the median estimate of 16 economists in a Bloomberg News survey.

Currencies Gain

The Thai baht and the Malaysian ringgit are the best- performing currencies in Asia this year excluding Japan, boosted by capital that is lured to the region by the possibility of higher returns. Thailand’s benchmark stock index this month reached the highest level since October 1996, while Malaysia’s FTSE Bursa Malaysia KLCI Index rose to a record.

Thailand’s growth slowed as exports eased and agricultural output declined, prompting the government to predict the central bank will refrain from raising interest rates for the next year. The Bank of Thailand in October kept its benchmark rate at 1.75 percent after raising it in July and August.

The central bank will probably keep borrowing costs unchanged in 2011 to counter faltering growth, the economic development board said yesterday.

Moderating Growth

Barclays Plc expects Thai “export growth to continue to ease over the next six months, consistent with weaker global demand and the slowing in the global electronics cycle,” said Rahul Bajoria, its Singapore-based economist. “We believe the central bank is likely to take a gradual approach to policy normalization.”

Malaysia will probably see moderating growth going into the first quarter of 2011, central bank Governor Zeti Akhtar Aziz said yesterday. The economy will “strengthen” in the second half of next year, she told reporters in Kuala Lumpur.

“While the exports engine is likely to falter, domestic demand remains resilient” in Malaysia, said Alvin Liew, a Singapore-based economist at Standard Chartered Plc. “The data remains consistent with our view that Bank Negara will pause rate hikes for now.”

Malaysia’s policy makers next meet in January to decide on borrowing costs. They left the overnight policy rate, or OPR, at 2.75 percent in September and November after raising it three times since early March.

Inflation Estimate

“We don’t see inflation as a major threat,” Zeti said yesterday when asked whether growth or price pressures was the bigger challenge for policy makers next year. “We believe the current level of the OPR is very supportive of economic activity.”

The inflation rate probably climbed in October to 1.9 percent, according to the median estimate of 15 economists surveyed by Bloomberg News ahead of a report from the statistics department tomorrow.

Zeti said economic growth will probably be between 6 percent and 7 percent this year.

Malaysia’s exports, which include IOI Corp.’s palm oil and Intel Corp.’s computer chips, rose at the slowest pace in 10 months in September as shipments to the U.S. and China eased. Its manufacturing industry grew 7.5 percent in the third quarter from a year earlier, the slowest pace this year, and exports of goods and services gained 6.6 percent, half the pace of the previous three months, according to yesterday’s report.

‘Still Worried’

The U.S. Federal Reserve said this month it will purchase $600 billion of Treasuries to spur the world’s largest economy, a move that policy makers from Asia to South America said could depress the dollar and spark capital flight to emerging markets.

Thai Prime Minister Abhisit Vejjajiva said Nov. 12 he is “still worried” about gains in the baht, which earlier this month strengthened to the highest level in 13 years. The country last month removed a 15 percent tax exemption for foreigners on income from domestic bonds and Bank of Thailand Governor Prasarn Trairatvorakul said Oct. 21 the bank is studying additional measures to reduce the volatility of the baht.

Malaysia reiterated yesterday it has no plans to restrict capital flows. The ringgit has climbed about 8 percent against the dollar in the past year, while Thailand’s baht gained more than 10 percent and Indonesia’s rupiah about 6 percent.

“We are in a position to monitor and detect any emerging risks,” Zeti said. “At this point in time, conditions are manageable. We are certainly not considering any sort of restrictive measures.”