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By Boontiwa Wichakul
BANGKOK, Dec 26 (Reuters) - Thailand may slip into deflation next year as the impact of the oil price spike fades, but the economy will recover quickly because there is no risk of a collapse in domestic demand, a deputy central bank governor said.
Analysts expect the Bank of Thailand to cut its benchmark interest rate further in the first half of 2009 after slashing it by a bigger-than-expected 1 percentage point to 2.75 percent in early December.
"We expect the BoT to cut rates by another 175 basis points in the first half of 2009, taking its one-day repurchase rate to just 1.0 percent," said Usara Wilaipich, an economist at Standard Chartered Bank.
She forecast Thailand's economic growth would slow to 1.3 percent in 2009, hit by the global financial crisis. Analysts in a Reuters poll forecast earlier in the month 2.8 percent growth for next year and 4.5 percent growth in 2008.
"There are chances for the inflation rate to slip into negative territory in some months next year because of falling oil prices," Bank of Thailand Deputy Governor Atchana Waiquamdee told reporters on Friday.
"Technically speaking, we would call it deflation if inflation slips into negative territory for two consecutive quarters," she said.
But Atchana said any deflation next year should not be interpreted as sign of an economy in crisis.
"Possible deflation in some months could be attributed to oil prices and technical reasons, not to the state of our slowing economy."
"Our economy has not deteriorated to a crisis seen back in 1998. Our commercial banks remain sound and not over-exposed to bad subprime loans," she added.
Standard Chartered's Usara predicted that inflation would average just 0.9 percent in 2009, compared with 3.0-3.5 percent forecast by state planning agency National Economic and Social Development Board for 2008.
BoT Deputy Governor Atchana said she expected the number of unemployed would average 800,000-900,000 in 2009, or nearly three percent of the national workforce, up from 510,000 or 1.4 percent in 2007.
"It will not be as bad as in 1998 when our unemployment rate was 3.4 percent," she said.
Analysts say one percentage point fall in Thai gross domestic product would put about 350,000 people out of work.
New Prime Minister Abhisit Vejjajiva has said his government plans to adopt a 300 billion baht ($8.6 billion) stimulus package, with funds drawn from a mid-year supplementary fiscal budget and loan injections by state-run banks, to prevent the economy from sliding into recession. (Writing by Vithoon Amorn; Editing by Kazunori Takada)