THAI BANKS WEIGH NEW INTEREST RATE CUT Officials of five Thai commercial banks are expected to meet tomorrow to seek agreement on cutting interest rates, banking sources said. They said they expect Thai banks to opt for a cut to spur domestic loan demand to help reduce persistent high liquidity on the money market. Many bankers have been urging an average half percentage point cut in deposit rates and a one point cut in lending rates, they said. Six major Thai major banks reduced minimum loan and overdraft rates by 0.50 to 0.75 percentage point on February 16 but the move has not substantially increased loan demand, the sources said. Excess liquidity has been hitting bank profits since early last year despite five interest rate cuts in 1986. The current gross 7.25 pct interest rate for one-year fixed bank deposit and the 11.5 pct minimum loan rate are the lowest in a decade. Bankers said the Thai banking system is saddled with about 40 to 50 billion baht of surplus funds which have created problems for many banks in managing their money effectively. Profits of many Thai banks fell sharply last year partly because of a mismatch of loan demand and bank deposit growth. The Bank of Thailand estimated overall lending by the Thai banking system grew 3.8 pct in 1986 against a 12 pct expansion in bank deposits. Reports of a possible new round of interest rate cuts have further buoyed the Thai stock market this week. The Securities Exchange of Thailand (SET) Index on Monday recorded its biggest daily advance in recent years, shooting up 4.57 points to a new seven-year high of 223.02. Brokers and market analysts said Thai stocks will register more gains as long as liquidity remains in the money market. Thai and foreign bankers said the liquidity problem will grow if the Bank of Thailand does not extend permission for local banks to hold foreign exchange positions up to 40 pct of bank capital. If the regulation is not extended beyond its April 3 expiry date, many commercial banks will have to reduce foreign exchange holdings to a maximum 20 pct. Bankers said such that could add another five billion baht of surplus funds to the local money market.