INTERVIEW-Thai policy could be eased further but negative rates 'not good option" - cenbank gov

* Says shocks include coronavirus second wave

* Plans to relax rules on foreign currency deposit accounts soon

* Says baht moves in line with regional currencies

* Says inflation to return to target in H2 next year

BANGKOK, Aug 28 (Reuters) - Thailand’s central bank could cut its monetary policy rate again in the event of further economic shocks but negative rates are “not a good policy option”, its governor said on Friday.

The Bank of Thailand (BOT) could ease further “if we have a second wave (of coronavirus infections), or if the pandemic continues to have a significant impact on the global economy that will have an impact on our recovery,” Veerathai Santiprabhob told Reuters in an interview.

But he stressed policy room was limited.

“We have to make sure that we use the remaining policy space wisely,” Veerathai said. “If you act too fast, then you lose policy space when you don’t know how the pandemic will end”.

For now, the central bank is sticking with its forecast that Southeast Asia’s second-largest economy will contract by 8.1% this year, though Veerathai conceded that could be “optimistic”.

Gross domestic product shrank 12.2% in the second quarter from a year earlier, the deepest contraction since the 1998 Asian crisis, as the pandemic and tough containment measures hit business and consumer spending, tourism and exports.

Growth of 5% is possible in 2021, Veerathai added.

He said he expected a surge in bad loans given the economic slowdown but banks have been very vigilant.

The BOT’s monetary policy committee has left its key interest rate unchanged at a record low of 0.5% since May after cutting it three times earlier in the year. It will next review policy and economic forecasts on Sept. 23.

“The situation is quite fluid,” Veerathai said, adding tourism was a key factor for economic assumptions.

Thailand has recorded no foreign visitors since April due to travel bans. The state planning agency expects only 6.7 million foreign tourists this year after last year’s record 39.8 million visitors, whose spending made up 11.4% of GDP.

From October, Thailand will allow foreign tourists to visit the resort island of Phuket for long stays with a quarantine.

Veerathai also said moves in the baht were in line with regional currencies, and the BOT would only act to curb excessive volatility.

The BOT has no intention of weakening the baht for any trade advantage, he said, when asked if he was worried about being added to the U.S. Watch list for currency manipulation.

The BOT also plans to relax rules on foreign currency deposit accounts “very soon” to help ease the impact of gold trading on the baht, Veerathai said.

He also said youth-led protests demanding the resignation of Prime Minister Prayuth Chan-ocha and new elections appear to have a short-lived impact on financial markets and should not be a major concern for investors.

To mitigate the pandemic impact, Thailand has introduced relief and stimulus measures, including a 1.9 trillion baht ($61.00 billion) package.

Veerathai said there was still room for more fiscal support.

“Monetary policy cannot put income into the wallets of people. So, fiscal policy will have to be the leader”.

($1 = 31.15 baht)

Editing by Kim Coghill