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Baht at 16-Year High as Growth Optimism Spurs Inflows

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March 19 (Bloomberg) -- Thailand’s baht rose to its strongest level since July 1997 amid optimism the nation’s improving economy will draw more funds from abroad.

The currency gained the most in two months as the MSCI Asia Pacific Index of shares rebounded from its biggest loss since July. The appreciation was spurred by the economy’s strength attracting capital inflows, Bank of Thailand Governor Prasarn Trairatvorakul said today, adding that the central bank will closely monitor the baht.

“The central bank seems to be tolerant of the gains, which also makes it easier for investors to put money into Thailand,” Yuji Kameoka, chief currency strategist at Daiwa Securities Co., said in Tokyo. “The nation’s economic performance is relatively strong, even among Asian nations, and that tends to attract fund inflows.”

The baht climbed 0.7 percent to 29.35 per dollar as of 3:54 p.m. in Bangkok and earlier touched a high of 29.33, according to data compiled by Bloomberg. This comes as global funds bought $2.1 billion more government bonds than they sold this month through yesterday, adding to net purchases of $2.7 billion in February and $3.7 billion in January, Thai Bond Market Association data show.

Fitch Ratings raised its assessment on Thailand by one level to BBB+ on March 8, three levels above junk, citing a resilient economy and a more stable political environment.

Growth Outlook

The central bank raised its 2013 growth forecast in January to 4.9 percent from an October estimate of 4.6 percent. Deputy Governor Pongpen Ruengvirayudh said this month that the bank’s prediction will “most likely” be revised upwards to more than 5 percent. Gross domestic product expanded 6.4 percent last year.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped four basis points, or 0.04 percentage point, to 4.86 percent, the lowest level since Jan. 24.

Government bonds advanced for a sixth straight day. The yield on Thailand’s 3.625 percent notes due June 2023 declined one basis point to 3.58 percent, the lowest level since Feb. 27, data compiled by Bloomberg show.

To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net

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

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