By Orathai Sriring
BANGKOK, Oct 19 (Reuters) - The Bank of Thailand is expected to leave interest rates unchanged at a record low for the fourth meeting on Wednesday and say loose monetary policy is needed for the still fragile economic recovery.
The BOT has kept the rate at 1.25 percent since May after cuts totalling 2.5 percentage points since December to help pull the economy out of its first recession in 11 years. Most economists polled by Reuters expect rates to rise from the second quarter of 2010..
Following is what the BOT may say after its decision, due to be announced at 0730 GMT, Oct 21, and possible market reaction.
INTEREST RATE "APPROPRIATE"
The central bank will most likely reiterate recent policymakers' comments that interest rates are appropriate and supportive for the economic recovery without generating inflationary pressure. It may still say it stands ready to adopt a accommodative policy to help the economy.
BOT Deputy Governor Bandid Nijathaworn said on Oct. 12, a loose monetary policy was still needed to boost spending and private investment despite signs of economic recovery.
Such comments are unlikely to have a big impact on financial markets, which believe the bank will keep rates unchanged until the second quarter of next year. It is likely to start rising then following an expected rise in inflation.
ECONOMY SHOWS RECOVERY BUT STILL FRAGILE
The central bank is likely to repeat that while the economy has improved, the recovery is still fragile. It may point to uncertainty about the world economy and the political situation at home amid threats of anti-government protests.
At its last meeting on Aug. 26, the central bank said there was still a "high degree" of uncertainty about the sustainability of the global recovery.
Deputy Governor Bandid told Reuters on Sept. 25 the economy was recovering but that consumer and business sentiment was glum and would benefit from political stability.
Exports, the engine of Thailand's $260 billion economy, fell at a slower pace in August, with the value in dollars the highest this year. But manufacturing output was surprisingly weak and consumption also fell from July.
The BOT forecast the economy would shrink 3.0-4.5 percent this year before growing 3.0-5.0 percent in 2010. It reviews quarterly forecasts on Oct. 29.
VOLATILITY IN THAI MARKETS The central bank may say Thailand's financial markets are stable after shares and the currency fell sharply last week on investor concerns over the health of King Bhumibol Adulyadej.
It may say it is monitoring the foreign exchange market and repeat comments that the baht is competitive and moving in line with regional currencies. The central bank may also reiterate its commitment that it is ready to act to curb excessive currency moves.
The baht was traded around 33.38 per dollar at 0915 GMT after falling to a more than two-week low of 33.68 last Thursday. The stock market was up 1.7 percent after the biggest slide in a year last Thursday.
King Bhumibol, the world's longest-reigning monarch at age 81, has been in hospital since Sept. 19, when he was admitted suffering from fever, fatigue and weak appetite.
The king, who has reigned for 63 years, is Thailand's single unifying figure and is regarded as semi-divine by many of the country's 67 million people. His health is an extremely sensitive topic.
NO SIGN OF HIGHER RATES SOON
The central bank will not signal a rate rise any time soon but may reiterate its support the export-driven economy, which just emerged from recession in the second quarter while inflation was not a concern yet.
The BOT has repeatedly said rates should only rise once the recovery is sustainable and that demand-pull inflation poses a risk.
Consumer prices fell 1.0 percent from a year earlier in September after a record 4.4 percent drop in July. Economists expect prices to rise quickly on an annual basis as the "temporary deflation" this year caused by a base effect resulting from high oil and food prices last year draws to an end.
The central bank's inflation forecast ranges from zero to -1.5 percent and 3.5-5.5 percent next year. ($1=33.40 Baht) (Editing by Jan Dahinten)