(adds further comments, background)
By John Chalmers and Nopporn Wong-Anan
SINGAPORE, June 22 (Reuters) - Thai Prime Minister Abhisit Vejjajiva said on Monday that the central bank had gone as far as it could cutting interest rates and he saw the economy returning to positive growth by the end of this year. "They brought interest rates down substantially (already) ... they have gone as far as they can go," Abhisit told Reuters in an interview in Singapore.
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.
Bond yields have risen sharply since the meeting as the decision fuelled speculation the central bank's easing cycle was over following cuts of 2.50 percentage points since December.
The main Thai interest rate now stands at 1.25 percent, having been cut by 2.50 percentage points since December.
"Abhisit's comment is quite hawkish and supports our view that the Thai policy rate has probably reached bottom at 1.25 percent," said Usara Wilaipich, an economist at Standard Chartered Bank.
TWO PERCENT GROWTH NEXT YEAR
Abhisit, 44, became Thailand's third prime minister in as many months last December, coming to office through parliamentary defections the opposition says the army engineered.
His intellect and overseas education made him a favourite of the foreign business community, but cut little ice with the rural northeastern Thais who formed the backbone of support for former prime minister Thaksin Shinawatra, who was ousted in a 2006 coup and now lives in self-imposed exile.
Abhisit said he expected a second economic stimulus decree, which would allow the government to borrow 400 billion baht, to be approved by the upper house of parliament on Monday.
"We'd like to see growth back in positive territory by the end of the year and maybe growth like 2 percent next year," he said. "Much of it will depend on the global recovery. Looking at the current situation we think it's achievable."
Abhisit said the central bank had taken an accommodative stance because it understood restoring economic growth was the top priority, and the fact inflation had been negative for 5-6 months meant "there's no real threat there".
Charl Kengchon, an economist at Kasikorn Research Centre, said the forecast of 2 percent growth for 2010 was realistic.
"With support from an expected rebound in exports, 2010 will be the year that we will see several export-related sectors recover," Charl said.
Some bankers at the the event said that despite Abhisit's reassurances, they still felt Thailand was politically unstable and would be cautious about investing in the country.