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Thai Baht Weakens to Four-Month Low as Interest-Rate Cut Seen

Thailand’s baht dropped to a four-month low before a review today at which the central bank is forecast to cut borrowing costs for the first time since October.

The Bank of Thailand will lower its one-day bond repurchase rate by a quarter of a percentage point to 2.5 percent, according to 15 of 24 economists surveyed by Bloomberg. One predicts a half-point cut and eight see no change. The Dollar Index, which tracks the greenback against six major counterparts, rose for a second day after a report yesterday showed U.S. consumer confidence is at a five-year high.

“The rate cut will put some more downward pressure in the short term on the baht,” said Hideki Hayashi, a researcher at the Japan Center for Economic Research in Tokyo. “There’s general dollar strength supported by the good U.S. data.”

The baht fell 0.5 percent to 30.15 per dollar as of 8:45 a.m. in Bangkok and touched 30.16 earlier, the weakest level since Jan. 15, according to data compiled by Bloomberg. The currency was poised for a second monthly decline, falling 2.7 percent in May.

There is a risk the baht could fall to 30.5 per dollar if the central bank cuts by more than 25 basis points, according to Paul Mackel, HSBC Holdings Plc’s Hong Kong-based head of Asian currency research. A bigger rate reduction would be taken as “quite an aggressive sign” that the monetary authority is still concerned about inflow pressures and the strength of the currency, he said yesterday.

Bonds Drop

The baht has advanced 1.4 percent this year, the second-best performance among the 11 most-traded Asian currencies after China’s yuan. It reached 28.56 on April 22 and April 19, the strongest level since July 1997. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell nine basis points, or 0.09 percentage point, to 6.66 percent.

The central bank will intervene in the foreign-exchange market should the baht move “excessively,” while any measures to curb fund inflows would be used as “a last resort,” Bank of Thailand Deputy Governor Pongpen Ruengvirayudh said yesterday. Finance Minister Kittiratt Na-Ranong said yesterday that proposed measures to deal with increased capital inflows will be published in the Royal Gazette in the next two days.

The yield on the 3.625 percent government bonds due June 2023 rose three basis points to 3.45 percent, data compiled by Bloomberg show.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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