July 17, 2020 / 3:36 AM / 24 days ago

UPDATE 1-Thai monetary policy should remain accommodative to help economy -c.bank

* Says inflation seen back to target in Q2 next year

* 2020 headline inflation seen -1.7% vs 1%-3% target

* Policy rate cut three times this year to record 0.5% (Adds detail, context)

By Orathai Sriring

BANGKOK, July 17 (Reuters) - Thailand’s monetary policy should remain accommodative for some time to support Southeast Asia’s worst performing economy through the coronavirus pandemic and help inflation return to target, the central bank said.

The Monetary Policy Committee expects headline inflation - projected at minus 1.7% this year - to get back to the 1%-3% target range in the second quarter of 2021, the Bank of Thailand (BOT) said in an open letter to the finance minister dated July 8 and released late on Thursday.

Over the next 12 months, average inflation was projected at minus 0.9%, the BOT said, adding supply-side pressures would remain low as a slow global economic recovery continued to weigh on world energy prices.

“The accommodative monetary policy should be maintained for some period of time to bolster the economic recovery and domestic purchasing power after the COVID-19 spread is under control,” it said.

Such a policy will also facilitate the return of headline inflation to target and reduce financial stability risks stemming from liquidity problems and the deteriorating debt servicing capability of households and businesses, the BOT said.

The BOT has cut the policy rate three times this year to a record low of 0.50%. It will next review policy on Aug. 5.

The BOT has forecast Southeast Asia’s second-largest economy will shrink by a record 8.1% this year as the outbreak batters vital tourism and domestic activity.

On Tuesday, the BOT said economic activity might not return to levels seen before the pandemic until 2022, but the policy rate was unlikely to go to zero percent.

Thailand has recorded no domestic virus transmissions for 52 days, but has not allowed foreign tourists to return yet.

For the full letter, click here

Reporting by Orathai Sriring Editing by Ed Davies

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