Thai Baht Has Best Weekly Rally in a Year on Inflows of Funds

Thailand’s baht had its biggest weekly advance since December 2011, and government bonds rose, as global funds increased holdings of assets that offer higher yields.

The currency touched a 17-month high yesterday as overseas investors bought $2.6 billion more of sovereign debt than they sold this month and purchased a net $297 million of equities, Thai Bond Market Association and stock exchange data show. The baht retreated after Finance Minister Kittiratt Na-Ranong said yesterday exporters will face difficulties if it strengthens further. The 10-year bond yields 3.7 percent, compared with 1.88 percent in the U.S. and 0.75 percent in Japan.

“Funds are flowing into the whole of Asia, especially Southeast Asia, and Thailand is one of the most attractive places,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “It’s possible to see smoothing operations to slow the pace of the appreciation, but they may not aggressively intervene to weaken the baht.”

The baht climbed 1.7 percent from a week ago to 29.78 per dollar as of 4:29 p.m. in Bangkok, according to data compiled by Bloomberg. The currency, little changed today, reached 29.72 yesterday, the most since August 2011. It had a seventh weekly advance, the longest winning stretch since October 2010.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose 22 basis points, or 0.22 percentage point, this week to 4.32 percent. The rate fell 20 basis points today.

‘Closely Watching’

The central bank raised its growth forecast for this year, citing rising exports, domestic consumption and investment. Gross domestic product will increase 4.9 percent from the 4.6 percent predicted in October, Assistant Governor Paiboon Kittisrikangwan told a news conference in Bangkok today.

Bank of Thailand Governor Prasarn Trairatvorakul said yesterday that capital inflows into short-term securities were driving the currency higher. The central bank is “closely watching” the situation and has measures to deal with the issue if needed, he said. Capital inflows totaling several billion baht have been recorded in Thailand’s bond market this week, mostly in short-term securities, Niwat Kanjanaphoomin, president of the Thai Bond Market Association, said this week.

Government bonds had their first weekly advance this year. The yield on the 3.125 percent government bonds due December 2015 declined four basis points from a week ago to 2.93 percent, data compiled by Bloomberg show. The rate rose one basis point today.

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