UPDATE 1-Thai c.bank has room to cut rates, worries about unrest

(Adds central bank governor's comments, job cuts)

By Boontiwa Wichakul and Trisanat Kongkhunthian

BANGKOK, Nov 25 (Reuters) - The Bank of Thailand has room to cut interest rates because inflation has fallen, but the economy might not feel the full benefit if political unrest continues to hurt confidence, central bank officials said on Tuesday.

"Inflationary pressures have eased in the second half, giving interest rates a bigger role to help the economy," Deputy Governor Bandid Nijathaworn told a seminar on Tuesday, reinforcing expectations rates would be cut next week.

Annual inflation fell sharply to 3.9 percent in October from a 10-year high of 9.2 percent in July.

The central bank is expected to cut its policy rate by at least a quarter of a point at a meeting on Dec. 3 after keeping it steady at 3.75 percent last month, following rate rises in July and August to tackle inflation.

Some analysts expect a half-point cut after economic growth in the third quarter was the lowest in three-and-a-half years, suffering from the global economic slowdown and political problems at home. [ID:nBKK376664].

Bank of Thailand Governor Tarisa Watanagase said rate cuts might not help much at a time of political turmoil.

"If there is no political stability, fiscal and monetary policies may not have much effect. Monetary policy may not boost spending as costs are only one factor and investment needs confidence," Tarisa told the seminar.

"Confidence is crucial, but it is on the downturn because of political problems," she said, as protesters surrounded the government's temporary offices in a bid to unseat it. [ID:nBKK188846].

The protracted political turmoil helped pull consumer confidence down to its lowest in a year in October.

JOB CUTS

Bandid also said monetary policy had to take into account the long-term implications.

"If rates are too low, savings will be hit. Fiscal policy may stimulate the economy better at a time of slowdown," he said.

"Actually, the current policy rate of 3.75 percent is not too high or too low," he said, in response to a comment that business wanted to see a hefty cut of one percentage point.

The central bank has said it will revise its 2009 growth forecast from 3.8-5.0 percent at the December meeting.

The state planning agency has forecast that the export-led economy would grow just 3-4 percent next year after 4.5 percent this year and a revised 4.9 percent in 2007.

Growth in exports fell to the lowest in six years at 5.2 percent in October as demand from key markets slowed, and the outlook is gloomy.

The Federation of Thai Industries (FTI) expects 1.1 million employees, 12.4 percent of the industrial workforce, to lose their jobs by the second quarter of next year year, the Bangkok Post reported.

Last week Japanese camera maker Nikon (7731.T) laid off 1,500 employees at its Thai plants, joining other global firms seeking to cut costs as sales fall. General Motors Corp GM.N has announced a two-month shutdown at its Thai plant and Toyota Motor Corp (7203.T) plans production cuts in Thailand.

But the Labour Ministry is less pessimistic, saying it expected only up to 700,000 jobless next year, even if the economy grows only 3-4 percent.

"If the government can push growth to 4-5 percent next year, we will see only 570,000 people unemployed," Boonlert Thiratrakul of the ministry's employment devision told a news conference.

The workforce in Thailand numbered 20 million last year, most in agriculture but around 5.7 million in non-agricultural jobs, central bank data showed.

The unemployment rate averaged 1.4 percent last year, or 510,000 people, compared with around 4 percent during the 1997/98 Asian financial crisis. (Writing by Orathai Sriring; Editing by Alan Raybould)