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Thai Bonds Rise as Central Bank Unexpectedly Cuts Interest Rates

Thailand’s government bonds rose, pushing the five-year yield down by the most since August 2011, after the central bank unexpectedly cut its benchmark interest rate for the first time since January to support the economy.

The yield dropped to the lowest level in two months after the Bank of Thailand reduced its one-day bond repurchase rate by a quarter of a percentage point to 2.75 percent, a move predicted by only three of the 23 economists in a Bloomberg survey. The rest forecast no change. Today’s decision to join South Korea and Brazil in cutting borrowing costs contrasts with Governor Prasarn Trairatvorakul’s stance in an Oct. 13 interview that there was no need for a reduction.

“The bond market actually expected no rate cut in October and is adjusting to the policy” decision, said Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl. “Investors will probably expect more rate cuts to come because of today’s move, which will support the bond market.”

The yield on the 3.25 percent notes due June 2017 slumped 16 basis points, or 0.16 percentage point, to 3.13 percent as of 3:21 p.m. in Bangkok, according to data compiled by Bloomberg. That is the lowest level for the note since Aug. 14.

The baht climbed 0.2 percent to 30.63 per dollar. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 4.27 percent.

The monetary authority today maintained its forecast for economic growth in 2012 at 5.7 percent, and said it would reduce its prediction for 2013. While weak exports will affect local demand in the future, the interest-rate cut is not a sign of a downward trend, Assistant Governor Paiboon Kittisrikangwan told a news briefing.

Exports dropped 7 percent in August from a year earlier after a decline of 4.5 percent in July, official data show.

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