BANGKOK • Thailand's central bank cut its benchmark interest rate yesterday for a second time this year, stepping up efforts to bolster its economy as exports will likely take a bigger hit from the Sino-United States trade war.

The central bank also further relaxed rules to encourage fund outflows to ease upward pressure on the baht, Asia's best performing currency this year.

The baht's strength has compounded problems for South-east Asia's second-largest economy as other sectors such as tourism slow.

Below-target inflation, risks to financial stability and high household debt have added further pressures on the economy.

The Bank of Thailand's (BOT) monetary policy committee (MPC) voted five to two to cut the one-day repurchase rate by 25 basis points to 1.25 per cent, a record low last seen during the global financial crisis.

Two members favoured no policy change.

"Most members viewed that a more accommodative monetary policy stance would contribute to economic growth and support the rise of headline inflation towards the target," the MPC said in a statement.

A slim majority of economists - 15 out of 28 - polled by Reuters had predicted no policy change, while the rest forecast a 25 basis-point cut.

"With weak global demand set to drag on exports, growth is likely to remain subdued," Capital Economics senior Asia economist Gareth Leather said in a note, adding that a strong baht was another reason for rates to be cut again.

Nomura economist Charnon Boonnuch said the central bank might pause for now to reassess the economic outlook amid even tighter policy space.

"However, we do not rule out the possibility of more easing next year."

The baht eased 0.4 per cent after the rate cut and measures, but it has still risen 7.4 per cent against the US dollar so far this year.

The BOT said among the rule changes, exporters with proceeds below US$200,000 (S$271,600) per bill of lading will be allowed to keep the proceeds abroad, without a time limit, compared with the current US$50,000 threshold.

Retail investors will be allowed to directly invest up to US$200,000 per year in foreign securities, while gold trading in foreign currencies will also be allowed.

Deputy Governor Mathee Supapongse said he expected the rate cut and the measures to help weaken the baht, and the central bank would review the results every three months.

"If the measures are not effective, there will be further relaxations," he said.

Capital Economics expects the central bank will cut once more this easing cycle, with rates being lowered to just 1 per cent.

In August, the MPC unexpectedly cut the key rate by a quarter point before pausing in September despite downgrading its growth outlook. It said it needed to keep policy room to address future risks.

A month later the central bank cut its growth forecast for this year to 2.8 per cent from 3.3 per cent, and next year's outlook to 3.3 per cent from 3.7 per cent. Last year's growth rate was 4.1 per cent.

Yesterday, the central bank said both growth and exports were likely to be weaker than it had forecast in September.

It had previously expected exports to fall 1 per cent for this year.

Headline inflation was just 0.11 per cent last month, the lowest in 28 months and far below the BOT's 1-4 per cent target range.

REUTERS