Baht Falls on Speculation Thai Government to Unveil Bond-Tax Plan Today

Thailand’s baht reversed earlier losses after the government said it will impose a tax on domestic bonds purchased by overseas investors in its latest effort to stem gains in the currency.

A 15 percent tax exemption on returns from government bonds enjoyed by non-resident investors will be removed from tomorrow, Finance Minister Korn Chatikavanij said after a Cabinet meeting today. The move will help slow capital inflows, he said. The baht has advanced 10.9 percent so far in 2010 as global funds bought $1.6 billion more Thai stocks than they sold.

“The baht rebounded because the foreign-exchange market already expected that this measure would come out since a few days ago and has already priced it in,” said Panida Viraphanich, head of trading at TMB Bank Pcl in Bangkok. “Exporters have also been selling the dollar near its highs, capping the dollar’s top side.”

The baht rose 0.1 percent to 30.01 per dollar as of 3:25 p.m. in Bangkok, reversing an earlier loss of as much as 0.3 percent, according to data compiled by Bloomberg. The currency has gained 1.1 percent this month and touched a 13-year high of 29.81 on Oct. 8.

Government bonds rose, ending a two-day slide. The yield on the 3.625 percent debt due May 2015 fell eight basis points to 2.629 percent. The rate yesterday advanced the most in five months. A basis point is 0.01 percentage point.

Overseas investors purchased a net $1.1 billion of Thai debt this month after pumping a net $4.9 billion into the securities in the third quarter, Thai Bond Market Association data show. The average daily trading of foreign investors in the secondary market doubled to 5 billion baht ($167 million) in the first nine months, from 2.5 billion baht last year, the association’s President, Niwat Kanjanaphoomin, said yesterday.

Rule Won’t Spur Outflows

The removal of the tax exemption won’t cause an outflow of funds because the rule doesn’t apply to investors who bought bonds earlier, Korn said today. The Cabinet also approved measures to help boost outflows by accelerating budget disbursements in foreign currencies, Korn said. In the fourth quarter, the government plans to spend 48.99 billion baht in foreign currencies, he said.

Other measures approved today to support small- and medium- sized exporters struggling with the rising baht include state banks providing help with forward contracts and offering dollar loans, according to the statement issued by the finance ministry.

The one-year onshore interest-rate swap, the fixed cost needed to receive a floating payment, climbed three basis points to 1.525 percent. A basis point is 0.01 percentage point.

To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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