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Baht Gains on Speculation Central Bank to Raise Rates Next Week

Thailand’s baht rose for a fourth day on speculation the central bank will raise borrowing costs at its meeting next week to tame inflation.

Policy makers may boost the one-day bond repurchase rate by a quarter-percentage point on March 9 to 2.5 percent, the fifth increase since June, according to seven of nine economists surveyed by Bloomberg News. Two predict no change. Crude oil trading near a two-year high is fueling concern inflation will accelerate further, according to Hideki Hayashi, a global economist at Mizuho Securities Co. in Tokyo.

“With gains in oil prices, emerging countries with strong economic growth like Thailand will probably need to hike rates, providing underlying support for the baht,” Hayashi said. “The rate-hike speculation next week also put pressure on interest-rate swaps to rise.”

The baht appreciated 0.1 percent to 30.51 per dollar as of 3:35 p.m. in Bangkok, according to data compiled by Bloomberg. The currency may strengthen to around 30.40 by the end of next week, Hayashi said.

The onshore one-year interest-rate swap, the fixed cost needed to receive a floating payment, climbed 4.5 basis points to 2.705 percent and is up from 2.64 percent at the end of last week.

The Bank of Thailand lifted the policy rate at its last meeting on Jan. 12 by 25 basis points to 2.25 percent and signaled further increases. The core inflation index, which excludes fresh food and fuel prices, rose 1.45 percent in February, accelerating from the 1.32 percent pace the previous month, official data released on March 1 showed.

Government bonds advanced. The yield on the 3.125 percent debt due December 2015 fell three basis points to 3.42 percent. A basis point is 0.01 percentage point.

The finance ministry plans to sell inflation-linked bonds for the first time in May to help investors preserve capital amid accelerating inflation. The government will sell 40 billion baht ($1.31 billion) of 10-year notes, possibly to both institutional and individual investors, Chakkrit Parapuntakul, director-general of the ministry’s Public Debt Management Office, said today. Underwriters will be chosen by the end of this month, he said.

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