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Thailand holds interest rate after army takeover

Thailand's central bank held its key interest rate Wednesday, in its first monetary policy decision since the army toppled a civilian government whose spending plans were hamstrung by months of political turmoil.

BANGKOK: Thailand's central bank held its key interest rate Wednesday, in its first monetary policy decision since the army toppled a civilian government whose spending plans were hamstrung by months of political turmoil.

The Bank of Thailand kept its policy rate at 2.00 per cent, a level set in March in an effort to boost a flagging economy which shrank 2.1 per cent quarter-on-quarter in the first three months of 2014.

The move comes as Thailand tries to stave off recession after months of economic gloom caused by a political crisis which chilled government spending, weakened business confidence and frightened off tourists.

Thailand's army seized power from the elected government on May 22, pledging to galvanise the kingdom's stuttering economy.

"Following a significant reduction of political uncertainties, the economy should benefit from improving public and private spending... and a resumption of functioning public policy," Paiboon Kittisrikangwan, of the bank's Monetary Policy Committee, said in a statement.

"The economic recovery should pick up pace," he added.

But he warned risks remained from sagging tourist arrivals and inflationary pressures.

To kick-start the economy, the junta has pledged support for small and mid-sized firms, as well as tax reform and the creation of special economic zones on the country's borders.

It is also reviewing infrastructure projects begun by the ousted government of former premier Yingluck Shinawatra, which was accused by its critics of cronyism and corruption.

The army's main measure so far has been to unblock $2.8 billion for farmers under Yingluck's loss-making rice price guarantee scheme, while consumer confidence has edged up.

"Importantly, fiscal spending now looks to be back on track as the army does not face the restrictions the previous caretaker government had to deal with," Krystal Tan of Capital Economics said in a statement reacting to the rate announcement.

But she warned the economy is still in a "delicate state", adding renewed spending will take some time to spin off into the wider economy.

Thailand's long-running crisis broadly pits Yingluck's elder brother Thaksin -- a billionaire tycoon-turned-politician toppled in the 2006 coup -- against a royalist establishment backed by parts of the military and judiciary.

While the country has earned the nickname "Teflon Thailand" for its record of bouncing back from past episodes of political turmoil, experts say the current bout of uncertainty raises questions over the long-term wisdom of investing in the kingdom.

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