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UPDATE 1-Thai central bank needed to save limited ammunition - minutes

* Policy rate at record low of 0.50% after three cuts this year

* C.bank says fiscal policy needs to play greater role

* Sees economy contracting by a record 7.8% in 2020

* Says assess additional steps as necessary (Adds details, link to minutes)

BANGKOK, Oct 7 (Reuters) - Thailand’s central bank saw a need to preserve limited monetary policy room to use at the most effective time, when it kept its benchmark rate steady at a record low last month, meeting minutes showed on Wednesday.

On Sept 23, the Bank of Thailand’s (BOT) monetary policy committee voted unanimously to leave the one-day repurchase rate at an all-time low of 0.50% after cutting it three times this year to support an economy badly hit by the coronavirus pandemic.

“The committee viewed that the record-low policy rate would facilitate the economic recovery”, while a further rate cut would be less effective in the current context and could increase financial vulnerabilities, the minutes said.

“The committee thus deemed it necessary to preserve the limited policy space for the appropriate and most effective timing,” they said.

Southeast Asia’s second-largest economy suffered its biggest contraction in 22 years in the second quarter as tourism and domestic activity tumbled. The BOT predicts it will shrink a record 7.8% this year before growing 3.6% next year.

The committee felt a rapid rise in the baht could affect the economic recovery and would consider the necessity of additional measures, such as encouraging balanced capital flows by increasing flexibility and convenience in foreign currency transactions and by promoting further liberalization of outward portfolio investments, they said.

The committee was concerned the weak labour market could affect the recovery and fiscal policy needed to play a greater role to support that, the minutes said.

Thailand has introduced a 1.9 trillion baht ($61 billion)virus response package but drawdown has been slow.

The government will discuss more stimulus, including tax incentives, later on Wednesday aimed at supporting the economy.

The central bank’s next policy review will be on Nov. 18.

For the full Minutes here

($1 = 31.33 baht)

Reporting by Orathai Sriring Editing by Ed Davies

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