By Orathai Sriring and Kitiphong Thaichareon

BANGKOK (Reuters) -Thailand’s economic recovery is intact and gradual policy tightening will help underpin growth and keep inflation in check, the central bank chief said on Wednesday.

The Bank of Thailand has raised its main interest rate six times since August to 2% to tame inflation and has pledged a gradual normalisation of monetary policy consistent with long-term economic growth prospects.

Southeast Asia’s second-largest economy is expected to grow 2.9% year-on-year in the first half of this year and 4.2% in the second half, driven by tourism, BOT Governor Sethaput Suthiwartnarueput said.

The economic and inflation outlook remains within expectations and monetary policy will focus more on the outlook than current data, he told a briefing.

“We don’t have to change anything suddenly… Overall, a need to stop normalising (rates) is not yet seen,” he said.

Asked about the terminal rate, Sethaput said the policy rate had been low for a long time and the real rate remained negative, driving demand for yield.

Thailand’s annual headline inflation rate was 0.23% in June, below the BOT’s target range of 1% to 3%, but Sethaput said it would return within the target in the period ahead.

The BOT will next review policy on Aug 2, when most economists expect a further quarter-point rate hike to 2.25%. It has raised the rate by a total of 150 basis points since August.

Thailand was expected to receive 29 million foreign tourists this year, Sethaput said, but exports, a key driver of growth, would be flat for the year despite an increase expected in the second half.

The strengthening of the baht has been driven by a weak dollar and local politics, Sethaput said, adding the currency would remain volatile.

Investors are hoping for the formation of a new government after prime ministerial candidate Pita Limjaroenrat, whose Move Forward party secured a stunning election win in May, said he would let second-placed Pheu Thai party lead if he failed in his second bid for premier.

Thailand’s Constitutional Court ordered a temporary suspension of Pita from parliament on Wednesday, when he was due to contest a parliamentary vote on the premiership.

A delay in forming the next government, however, would affect confidence in the economy, Sethaput said.

In May, the central bank maintained its forecasts for economic growth at 3.6% this year and 3.8% next year. Last year’s growth was 2.6%.

The economy expanded by a more-than-expected 2.7% in the first quarter from a year earlier as the vital tourism sector gathered strength.

(Reporting by Orathai Sriring, Kitiphong Thaichareon and Satawasin Staporncharnchai; Editing by Shri Navaratnam)

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