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Thai Baht Falls Most in Six Years as Rate-Cut Speculation Grows

Thailand’s baht fell the most since January 2007 as speculation increased the central bank will cut interest rates to curb inflows into local bonds that drove the exchange rate to a 16-year high.

The currency extended declines after Finance Minister Kittiratt Na-Ranong said today the Bank of Thailand should reduce its benchmark rate by more than a quarter of a percentage point or implement capital controls to stem gains. South Korea, Australia, India and Vietnam eased policy this month, while the Bank of Thailand kept rates steady. Kittiratt said yesterday that he and other government agencies will meet with the central bank’s monetary policy committee on May 13.

“The baht fluctuates based on what officials have been saying and Kittiratt’s comment moved it today,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl. “Rate cuts by central banks in Asia also put pressure on the Bank of Thailand to follow suit. Speculation of a rate cut in Thailand is growing.”

The baht slumped 1.2 percent to 29.74 per dollar as of 3:16 p.m. in Bangkok, according to data compiled by Bloomberg. It touched 29.77 earlier, the weakest level since March 11, and lost 0.1 percent from a week ago. The currency is still up 2.8 percent this year, the best performance in Asia. It reached 28.56 on April 22 and April 19, the strongest since July 1997.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 10 basis points today and six basis points this week to 6.43 percent.

Yen Weakness

Asian currencies fell versus the dollar today as the yen breached the 101 level for the first time since 2009. The Bloomberg-JPMorgan Asia Dollar Index, tracking the region’s most-traded currencies excluding the yen, declined to its lowest level this month.

“Concerns about measures to stem currency gains, whether it’s intervention, a rate cut or capital controls, are keeping some depreciation pressure on the baht,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “With the yen’s weakness, there’s general downward pressure on regional currencies.”

Thailand’s benchmark interest rate of 2.75 percent compares with a maximum of 0.25 percent in the U.S. and 0.1 percent in Japan. It is still lower than Indonesia’s 5.75 percent, the Philippines’ 3.5 percent and Malaysia’s 3 percent.

The central bank is ready to review interest rates should currency appreciation threaten to hurt the economy, it said in a statement on its website today. Governor Prasarn Trairatvorakul said yesterday that the rate differential is a factor influencing capital inflows.

The yield on the 3.625 percent government bonds due June 2023 fell five basis points, or 0.05 percentage point, to 3.33 percent this week, data compiled by Bloomberg show. The rate declined two basis points today to the lowest level since February 2012.

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