Baht Climbs to Highest Since 1997, Bonds Advance on Fund Inflows

Thailand’s baht rose to its strongest level since July 1997 as the nation’s improving economy attracts overseas capital, making the currency Asia’s best performing this year.

Special measures aren’t needed right now to stem appreciation in the baht, Finance Minister Kittiratt Na-Ranong told reporters in Bangkok today. It gained 1.9 percent this month versus the dollar even as four other major currencies in Southeast Asia declined during the period. Government bonds advanced for a seventh day after global funds bought $2.4 billion more sovereign debt than they sold this month after net purchases of $2.7 billion in February and $3.7 billion in January, Thai Bond Market Association data show.

“The economy is very solid and the central bank seems to be quite tolerant with the baht’s gains,” said Kozo Hasegawa, a foreign-exchange trader in Bangkok at Sumitomo Mitsui Banking Corp. “But because the pace of appreciation was so fast, the tolerance doesn’t mean they won’t intervene at all, and we may see some correction soon.”

The baht climbed 0.4 percent to 29.20 per dollar as of 3:16 p.m. in Bangkok and has strengthened 4.7 percent this year, according to data compiled by Bloomberg. It earlier touched the 1997 high of 29.14 after advancing 0.8 percent yesterday, the biggest gain since Jan. 2.

Bond Sales

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 23 basis points, or 0.23 percentage point, to 5.09 percent.

The baht has strengthened too quickly and its move today has been “excessive,” Bank of Thailand Governor Prasarn Trairatvorakul said, adding the central bank has no plans to impose measures on the baht, echoing Finance Minister Kittiratt’s remarks.

Kittiratt said today that the level of interest rates is encouraging the influx of capital. The Southeast Asian nation’s policy 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.

“Bond inflows continue to underpin the baht,” Mirza Baig, head of foreign exchange and interest rate strategy in Singapore at BNP Paribas SA, said in a research note today. “Year-to-date inflows are the largest in Asia.”

Prime Minister Yingluck Shinawatra said March 11 that the government is targeting annual economic growth of 4 percent to 5 percent over the long term, after a 6.4 percent expansion in 2012. The Bank of Thailand raised its 2013 forecast in January to 4.9 percent from an October prediction of 4.6 percent and signaled it will revise the estimate higher.

The yield on 3.625 percent notes due June 2023 held steady at 3.58 percent, the lowest level since Feb. 11, data compiled by Bloomberg show.

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