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Baht Gains on Speculation Central Bank Will Raise Policy Rate

March 8 (Bloomberg) -- Thailand’s baht advanced to its strongest level since January on speculation the central bank will boost borrowing costs to tame inflation, increasing the yield premium over developed nations.

The baht rose for a seventh straight day after overseas investors bought $32 million more shares than then sold yesterday, exchange data show. The Bank of Thailand may lift the one-day bond repurchase rate by a quarter-percentage point to 2.50 percent tomorrow, according to 17 of 20 economists surveyed by Bloomberg. Three predict no change.

“The baht is trying to price in the rate-hike expectation,” said Norawit Suparinayok, a foreign-exchange trader at Bangkok Bank Pcl. “Another factor is capital inflow. If we still see more inflows, the baht has a chance to get stronger.”

The baht advanced 0.2 percent to 30.37 against the greenback as of 3:38 p.m. in Bangkok, according to data compiled by Bloomberg. It earlier touched 30.34, the strongest level since Jan. 14.

Thailand’s central bank is preparing measures to limit capital flows and will enforce them when “appropriate,” according to Governor Prasarn Trairatvorakul. The measures will have different degrees of severity to cope with a variety of situations, he said today.

Government bonds gained the most since Jan. 4. The yield on the 3.125 percent bond due December 2015 fell seven basis points to 3.35 percent. The onshore one-year interest-rate swap, the fixed cost needed to receive a floating payment, was little changed at 2.705 percent. A basis point is 0.01 percentage point.

The Bank of Thailand raised the policy rate at its last meeting on Jan. 12 by 25 basis points to 2.25 percent, compared with near-zero rates in Japan and the U.S. Consumer prices rose 2.9 percent in February from a year earlier after gaining 3 percent the previous month, official data released on March 1 showed.

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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