Thailand’s baht fell, posting its worst week since December 2006, on concern policy makers will intervene in the currency market and introduce measures to slow the pace of gains that hurt exports.
The baht extended today’s decline to the biggest since January 2011 after Permanent Secretary for Finance Areepong Bhoocha-oom said in Bangkok the ministry may “adjust conditions on the purchase of government bonds,” without providing details. The local currency’s 3.9 percent rally this year, Asia’s best exchange-rate gain, was fueled by $12 billion in net purchases of the nation’s sovereign debt by foreigners.
“Because of the rhetorics, the market is on the lookout for possible controls” on capital flows, said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “If anything, those will be mild measures aimed to slow inflows rather than to stem the inflows altogether.”
The baht depreciated 1.1 percent today and 2.6 percent this week to 29.43 per dollar as of 3:02 p.m. in Bangkok, according to data compiled by Bloomberg. The weekly loss was the biggest since the five-day period ended Dec. 22, 2006.
The baht touched 28.56 on April 22 and April 19, the strongest level since a devaluation in July 1997 that sparked the Asian financial crisis, as investors increased holdings of the nation’s bonds. Global funds bought $2.1 billion more sovereign notes than they sold this month through yesterday, Thai Bond Market Association data show.
Thailand’s exports grew slower as the baht rose. Overseas sales, which account for about two-thirds of Southeast Asia’s second-largest economy, increased an average 4.9 percent in the first quarter, compared with 19 percent in the previous three months, government data show.
The Bank of Thailand said yesterday its board approved a plan to allow foreign-exchange reserves to be invested in bonds issued by state agencies overseas.
Prime Minister Yingluck Shinawatra called a meeting on the baht, the Thai language Krungthep Turakij newspaper reported today, without saying where it got the information. Yingluck and Finance Minister Kittiratt Na-Ranong will discuss the baht’s appreciation with officials from the Bank of Thailand, finance ministry and related agencies, Krungthep Turakij reported today.
Kittiratt and central bank Governor Prasarn Trairatvorakul have said there’s no need to impose controls to stem inflows.
Room to Weaken
Brown Brothers Harriman & Co. and Morgan Stanley said in research notes yesterday that the baht has more room to weaken. Morgan Stanley expects a depreciation to 29.50 per dollar in the short term.
“Foreign-exchange intervention and more regulatory measures are likely should the baht continue to strengthen, though we doubt more draconian measures will be introduced,” Brown Brothers’ London-based currency strategist Ilan Solot wrote in the report.
The central bank is worried about the baht’s rally this year, Assistant Governor Chantavarn Sucharitakul said on April 24. The comment came after Prasarn said April 19 that the baht has started to move beyond its fundamentals and Assistant Governor Paiboon Kittisrikangwan said April 22 that it has risen “too much and too quickly.”
“It actually suggests that they are now becoming more serious and could potentially introduce further measures,” said Sacha Tihanyi, a Hong Kong-based senior foreign-exchange strategist at Bank of Nova Scotia, which was the second most-accurate forecaster for Asian currencies over the past year. “I think it will not only incentivize baht profit taking, but also open the door to baht shorts,” he said, referring to a selling stance on the currency. Bank of Nova Scotia predicts the baht will weaken to 30.4 by the end of June.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 11 basis points this week to 5.40 percent. The gauge increased one basis point, or 0.01 percentage point, today.
The yield on the government’s 5.125 percent debt due March 2018 rose five basis points from a week ago to 3.18 percent and was up three basis points today, data compiled by Bloomberg show. The rate reached 3.1 percent on April 18, the lowest level since November 2010.