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Baht Drops Most Since May, Bonds Drop on Fed Stimulus Outlook

Thailand’s baht fell the most in almost six weeks and bonds slumped after Federal Reserve Chairman Ben S. Bernanke said the central bank will probably taper its stimulus this year.

The Federal Open Market Committee yesterday left the monthly pace of bond purchases unchanged at $85 billion, while saying that “downside risks to the outlook for the economy and the labor market” have diminished. Global funds pulled $2.7 billion from Thai bonds and equities since May 22, when Bernanke signaled a reduction in measures known as quantitative easing that have spurred demand for emerging-market assets.

The baht fell 1.2 percent to 31.08 per dollar as of 3:30 p.m. in Bangkok, the biggest slide since May 10, data compiled by Bloomberg show. That was within 0.4 percent of a nine-month low of 31.19 level touched on June 12. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 25 basis points, or 0.25 percentage point, to 7.7 percent.

“Bernanke hinting at the timing of the reduction in the quantitative easing is leading to dollar purchases across the board,” said Kozo Hasegawa, a Bangkok-based foreign-exchange trader at Sumitomo Mitsui Banking Corp. “That is also weighing on other local assets including the bonds. But concern about intervention is growing if the baht weakens sharply beyond 31.”

Possible Intervention

The Bank of Thailand will step in to curb excessive volatility in the baht if needed, Deputy Governor Pongpen Ruengvirayudh told reporters today in Bangkok. Finance Minister Kittiratt Na-Ranong said today he wants the Bank of Thailand to “manage the foreign-exchange rate,” adding the nation can cope with outflows given the size of its foreign-exchange reserves.

Central bank Governor Prasarn Trairatvorakul said June 13 the bank sold “a certain amount of dollars.” The authority’s reserves stood at $176.5 billion on June 7, up 2.7 percent from a year earlier, Bank of Thailand data show.

The government sees no need to implement measures to stem outflows, Somchai Sujjapongse, director-general of the finance ministry’s fiscal policy office, said June 14. Money will eventually flow back, he said.

The yield on the 3.625 percent government bonds due June 2023 climbed 20 basis points to 3.98 percent, according to data compiled by Bloomberg.

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