Thai Swaps Drop to Three-Year Low as Crisis Spurs Rate-Cut Bets

Thailand’s interest-rate swaps fell to the lowest level in more than three years as concern that the nation’s political crisis will worsen an economic slowdown spurred bets of a further reduction in borrowing costs.

Yingluck Shinawatra was forced to step down as leader on May 7 after the Constitutional Court found her guilty of abusing her power and the caretaker government has installed an acting prime minister. The ruling follows more than six months of protests aimed at ousting Shinawatra and central bank Governor Prasarn Trairatvorakul said yesterday the stalemate remains the biggest risk to Thailand’s economy.

“The Thai political situation is increasingly uncertain and that weighs on the economic outlook,” said Koji Fukaya, chief executive officer and foreign-exchange strategist at FPG Securities Co. in Tokyo. “This underpins speculation of a further rate cut.”

The one-year swap fell two basis points to 1.87 percent, the lowest level since February 2011, as of 9:09 a.m. in Bangkok, according to data compiled by Bloomberg. The contracts dropped four basis points since May 2, heading for a fifth straight weekly decline, the longest streak since the period ended Dec. 6, 2013.

The baht retreated 0.3 percent, a fourth day of losses, to 32.566 per dollar, data compiled by Bloomberg show. That’s the lowest level since March. The currency has depreciated 0.5 percent this week.

‘Credit Negative’

Moody’s Investors Service and Standard & Poor’s said yesterday that Yingluck’s removal was “credit negative” because it may prolong the political crisis and worsen violence that has already led to 25 deaths.

Two of 21 economists surveyed by Bloomberg predict the central bank will lower the policy rate by a further 25 basis points by year-end after a reduction in March that brought the benchmark rate to 2 percent, the lowest since 2010. Global funds pulled $458.5 million from the nation’s bonds in May, data from the Thai Bond Market Association show.

Policy makers in Southeast Asia’s second-largest economy reduced their 2014 growth estimate to 2.7 percent on March 21 from 3 percent earlier that month.

The yield on Thailand’s 3.625 percent sovereign notes due June 2023 fell two basis points to 3.50 percent, data compiled by Bloomberg show. It declined 13 basis points since May 2, headed for its biggest drop since September.

To contact the reporters on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net Anil Varma, Simon Harvey

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