Thai c.bank signals more FX intervention, holds rates

* Bank of Thailand signals more FX intervention

* Policy rate unchanged at 1.25 pct, as expected

* BOT says rate appropriate, supports economy

* Economy is expected to recover gradually - BOT

* Most economists see rate rising from Q2 2010

By Kitiphong Thaichareon and Orathai Sriring

BANGKOK, Oct 21 - Thailand's central bank signalled on Wednesday it will intervene to curb excessive strength in the baht, but that it would not stand in the way of a rising trend so long as the currency remains competitive with its peers.

The Bank of Thailand said the baht's strength was not impeding exports or an economic recovery, although it decided to leave its policy interest rate unchanged at a record low of 1.25 percent for the fourth straight meeting to support growth.

It maintained that its policy settings were appropriate and supportive of a recovery from the global downturn, underlining expectations rates would be on hold well into 2010.

The Thai baht <THB=> is up about 4 percent against the dollar this year, making it the fourth-strongest in Asia among the currencies monitored daily by Reuters.

"The current baht is not an obstacle to exports and the economic recovery," Bank of Thailand Assistant Governor Paiboon Kittisrikangwan told a news conference.

"We will ensure its smooth moves, but we do not aim to make it stand still all the time."

Asian currencies are climbing fast off the back of a flood of portfolio investment into emerging markets, which are expected to recover from the global financial crisis before developed economies.

Central banks in Thailand, South Korea, Indonesia, Taiwan are among those which have been spotted by currency dealers buying dollars in recent weeks to control their currencies and to help keep exports competitive.

Analysts said the Bank of Thailand comments signalled further intervention from the monetary authority to curb volatility. But equally, the central bank would allow the baht to rise if it remained in line with economic fundamentals.

"The central bank is keeping up rhetoric of its policy stance regarding the baht. However, it does mean the baht has scope to climb further from here in the event regional currencies climb as well," said economist Carl Rajoo at Forecast in Singapore

The baht, which was at 33.42 baht per dollar on Wednesday against 33.38 on Tuesday. It fell last week to a two-week low on investor concerns about the health of Thailand's 81-year-old king.

The baht trails only behind Indonesia's rupiah <IDR=>, South Korea's won <KRW=> and India's rupee <INR=> in levels of appreciation this year. [ID:nSP505836]

"For competitiveness, we have to look at competitors' currencies and the baht is still 1 percent weaker against them," Paiboon said, noting that Thai exports had been strengthening despite gains in the baht.

As if to underscore his point, data on Wednesday showed exports in September fell a smaller-than-expected 8.5 percent from a year earlier.

It was the smallest percentage drop since November. At $14.9 billion, the value of exports was also the highest for a single month in a year.

The central bank said domestic conditions had improved for manufacturing, exports and tourism.

All three sectors got a lift from Thailand's loose monetary policy and aggressive fiscal stimulus. However, it said there remained some uncertainties about the domestic and global economic recovery.

CAUTIOUS

The central bank's cautious outlook meant that it would probably keep rates on hold until well into 2010, economists said, similar to their view before Wednesday's policy review.

"The BOT remains cautious on growth prospects," said economist Usara Wilaipich, economist at Standard Chartered Bank. "We continue to believe that the BOT is likely to stay put with its monetary policy for much of 2010."

Rates are on hold across Asia as central banks wait for clear signs economic recovery has taken hold. One fear policymakers have is that once they start to withdraw the extraordinary stimulus put in place during the downturn, economies will slide back into a downturn.

The Bank of Thailand cut its rate four times and by a total of 2.50 percentage points between December and April.

Thailand's central bank has said it was assessing the impact of earlier cuts and government spending that helped the economy emerge from recession in the second quarter.

Still, the downturn has done damage. The BOT expects the economy to shrink 3.0-4.5 percent this year, the weakest since 1998, before growing 3-5 percent in 2010.

It predicts consumer prices this year would be unchanged to down 1.5 percent before rising 3.5-5.5 percent next year. It reviews its quarterly forecasts on Oct. 29.