Baht Heads for Weekly Drop as Barclays Cuts Forecast; Bonds Gain

Thailand’s baht headed for its first weekly loss in three on concern the nation’s recession will deter foreign inflows. Bonds advanced for a third week.

The currency weakened today as Barclays Plc cut the country’s 2013 economic growth forecast to 2.5 percent from 3.5 percent. The lender cited a domestic credit crunch, waning stimulus and lack of confidence after Southeast Asia’s second-largest economy shrank in the first two quarters, while exports fell for three months through July. The Bank of Thailand is concerned about sluggish private demand and labor shortages, Governor Prasarn Trairatvorakul said in Bangkok today.

The baht dropped 0.4 percent this week to 31.25 per dollar as of 9:37 a.m. in Bangkok, according data compiled by Bloomberg. The currency fell 0.2 percent today and has retreated 1.2 percent from a two-month high of 30.88 on Sept. 20 that followed the Federal Reserve decision to not reduce its record stimulus.

“The economy is likely to remain on the downtrend in the second half due to the slowdown in exports,” said Thammarat Kittisiripat, an economist in Bangkok at TMB Bank Pcl. “The baht will depreciate and fund outflows in the short term will continue.”

One-month implied volatility, a measure of expected swings in the exchange rate used to price options, decreased 37 basis points from a week ago to 7.46 percent. The gauge dropped 19 basis points, or 0.19 percentage point, today.

Stock Outflows

The baht is likely to underperform its Southeast Asian peers, such as Malaysia’s ringgit and the Philippine peso, given modest economic growth and weakening external balances, Barclays said in the report. It will fall to 31.5 per dollar by March 31 and 31.75 by June 30, the U.K. lender forecasts.

Overseas funds sold $211 million more local stocks than they bought this week, according to exchange data, taking net sales this year to $3.3 billion. The benchmark SET Index has declined 3.5 percent since Sept. 20.

The yield on the 3.625 percent bonds due June 2023 fell 11 basis points this week to 3.91 percent, data compiled by Bloomberg show, following a 37 basis points decrease last week that was the biggest drop since August 2011. The rate increased five basis points today.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

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

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