July 14, 2020 / 9:13 AM / a month ago

UPDATE 1-Thai economic recovery slows but zero pct policy rate unlikely

* C.bank sees economic activity at pre-COVID-19 levels in 2022

* Policy rate at record low 0.50% after three cuts this year

* To allow more trading of gold, commodities in U.S. dollars

* Not worried Thailand will be named FX manipulator by U.S. (Adds quotes, context)

By Kitiphong Thaichareon and Orathai Sriring

BANGKOK, July 14 (Reuters) - Thailand’s economic activity may not return to levels seen before the COVID-19 pandemic until 2022, but the country’s record-low policy interest rate of 0.50% is unlikely to go to zero percent, the central bank said on Tuesday.

The Bank of Thailand (BOT) has forecast the trade-and-tourism driven economy will shrink by a record 8.1% this year, with foreign tourist numbers plunging 80%, as the pandemic cuts global demand and travel. It said the forecast was tilted to the downside.

The economy should gradually recover after hitting bottom in the second quarter, Governor Veerathai Santiprabhob told an analyst meeting.

“The outbreak will continue, possibly with more cases. But the government should be able to handle that and there is no need for strong measures yet,” Veerathai said. Thailand has recorded no local transmission of the coronavirus in about seven weeks.

The BOT has cut its policy rate three times this year to 0.50% to cushion the outbreak impact on Southeast Asia’s second-largest economy.

“The policy rate at zero percent may be difficult to occur because it will affect the economic system and savings,” said Deputy BOT Governor Mathee Supapongse.

Policy space should be preserved for the worst, said the BOT, which left rates unchanged last month and will next review policy on Aug. 5.

The BOT will smooth out excessive moves in the baht and allow more trading of gold and commodities in U.S. dollars to reduce the impact on the Thai currency, Mathee said.

“Gold trading is still largely in baht,” he said, adding more rules would be made clear this year.

The BOT is not worried Thailand will be named a currency manipulator by Washington. “We have discussed with the U.S. Treasury and they understand our monetary policy implementation,” Veerathai said.

The BOT is examining yield curve controls, though quantitative easing may not help the economic recovery given ample liquidity, Mathee said. (Additional reporing by Satawasin Staporncharnchai Editing by Ed Davies)

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