Jan. 6--Thailand has a lot of room for a stronger monetary stimulus given its relatively high policy interest rate, says Michael Spencer, Deutsche Bank's chief economist for Asia.

As inflationary pressures have eased, the country's one-day repurchase rate is expected to be cut by 150 basis points within the first half of this year.

He forecast the Bank of Thailand would start by cutting the policy rate by 50 basis points at its first meeting on Jan 14 from the current 2.75 percent.

The German bank estimated Thailand's core inflation would decrease to 0.8 percent this year from 2.3 percent last year while headline inflation should fall to 0.7 percent this year compared to 5.6 percent in the previous year.

"Inflation falling below interest rates would be positive to real interest rates. And the figure would lead to a stronger baht. The scenario would occur over the region. Rising real rates are positive for Asian currencies," he said.

However, the export slowdown would put pressure on the baht, causing it to weaken to around 36 to 36.50 baht against the US dollar in the middle of this year before rebounding to 34 baht by the end of the year, supported by low interest rates and foreign capital inflow.

Past economic data have shown that whenever exports, the main growth engine, slow down, public investment would significantly increase and take over as the main driver for growth, a most likely scenario this year.

Mr Spencer forecast Thailand's government investment could grow by 2.4 percent this year compared to a 3.4 percent contraction last year. Meanwhile, the country's export growth would drop by 1 percent this year, compared to a 8.7 percent increase forecast for 2007.

"Under the global economic downturn, we expected the Thai economic growth rate would be 1.5 percent, falling from a 4.5 percent growth rate projection for 2008. Government investment with large fiscal budgets would be the key engine to boost the country's economy this year," he said.

He predicted Thailand's fiscal account would be in deficit, at 1.7 percent of the country's gross domestic product this year. Government spending would strengthen consumer confidence to spend and domestic consumption would grow by 2.9 percent this year, a little higher than 2.8 percent projected for 2008.

The economist estimated global economic growth for this year to be 0.2 percent, down from the projected rate of 3.1 percent in 2008. However, the world economy would recover next year, buoyed by lower inflation rates due mainly to declining commodity prices.

Deutsche Bank predicted the world inflation rate would fall to 1.9 percent this year from 5.3 percent in 2008. The positive factor would help push the global economic growth to 2.6 percent in 2010.

But falling commodity prices this year would pose a deflation risk for countries in the region, including Thailand, China, Hong Kong and Singapore. Only Taiwan could rule out this risk factor, thanks to its negative average headline inflation this year, Mr Spencer added.

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