* After May pause, policy rates not at a turning point yet
* Bank of Thailand may still cut rates again
* Inflation not a worry so no interest rate rise in sight
* Economy may have bottomed in Q1 but recovery signs unclear
* Baht is competitive, moving in line with Asian rivals
By Orathai Sriring
BANGKOK, June 19 (Reuters) - Thailand's central bank governor on Friday played down suggestions that interest rates were at a turning point following a series of cuts, saying that the monetary authority is ready to cut rates again if need be.
In an interview, Tarisa Watanagase said she is not worried about any resurgence in inflation, a view that contrasts with some other central banks that have pointed to the risk that rising oil prices could fuel wider price pressures once again.
The Bank of Thailand surprised financial markets at its last meeting in May by leaving its policy rate steady at 1.25 percent when a 25 basis point cut had been widely expected to aid recovery from the global downturn.
Bonds yields have risen sharply since the meeting as the decision fuelled speculation that the central bank's easing cycle was over following cuts of 2.50 percentage points since December.
But, asked if the central bank was ready to cut interest rates further if the economy deteriorated, Tarisa replied: "Definitely, if it worsens. It depends on the necessity and whether it's appropriate."
She added: "If the risks of an economic slowdown don't increase, we have no need to move it (the rate). We need to look at further data before the meeting. Now nobody can predict anything long term because the situation changes quickly."
At its last policy meeting on May 20, the central bank said it had already cut rates to a level that would support economic recovery, although it stood ready to cut again if new risks flared. [ID:nBKK119186]
Other central banks in Asia, including those in Malaysia and South Korea, have also paused to monitor the impact of monetary easing, and the debate in some countries is turning to when interest rates may have to rise, especially if heavy government spending fuels inflation.
Tarisa noted that some people were starting to talk about a rate increase in Thailand, too, but she played that down.
"We're not at a turning-point yet," she said.
Smiling, she added: "If you ask me if rates will rise at the next meeting, I can definitely say 'no'."
The central bank's policy committee next meets on July 15.
The stock market added to its gains in response to her comments on interest rates and the main index <.SETI> ended at the day's high of 588.98, up 3.25 percent.
THE BAHT IS FINE
Yields on Thai government five-year bonds
The rise reflects the risk that the central bank's next move may be to raise rates. But bond yields globally are also rising as rate cutting comes to an end and markets anticipate a revival of inflationary pressures and eventual economic recovery.
The Bank of Korea left rates unchanged last Thursday and warned rising oil prices were fuelling inflationary pressures. World crude prices hit their highest level in more than seven months that day.
Tarisa said Thailand's economy probably hit bottom in the first quarter, when it slipped into recession for the first time in a decade. But signs of recovery were not clear, she said.
The government expects the economy to contract by as much as 5 percent this year, but Prime Minister Abhisit Vejjajiva says growth should resume in the fourth quarter, helped by stimulus measures. He has forecast growth of 1-2 percent in 2010. [ID:nBKK253091]
Signs the worst of the global downturn may be over have sparked a rush by investors into emerging markets, resulting in a rally in their currencies.
Earlier this month, Finance Minister Korn Chatikavanij said the baht's strength would hurt the export-driven economy and he urged the central bank to keep the currency at an appropriate level for trade. [ID:nBKK370147]
But Tarisa suggested currency stability was important, not the specific level at which the currency was trading.
She said she had met exporters on Friday and they were not concerned about the currency, which has risen more than 6 percent against the dollar since hitting a two-year low in early March.
"The baht ... is still moving in line with neighbouring currencies, so we're safe," she said.
"The private sector we talked to today asked us to keep the baht stable, not to target certain levels for the baht. We're ready to take care of it if it's volatile."
In any case, she was sceptical that a weaker baht would do much to support exports when global demand is so weak, saying the main factor was demand and the purchasing power of buyers. (Writing by Alan Raybould; Editing by Neil Fullick)