Thai Baht Rebounds as Central Bank Refrains From Capital Curbs

Thailand’s baht, Asia’s best-performing currency this year, rebounded from a two-week low as the central bank held borrowing costs, without signaling any need to curb capital inflows.

The Bank of Thailand left its benchmark interest rate unchanged at 2.75 percent as predicted by 20 of 21 economists in a Bloomberg survey. One expected a quarter of a percentage point cut. The monetary authority said after the rate decision that it will raise its 2013 growth forecast from the current 4.9 percent, adding that an accommodative policy is still needed for Southeast Asia’s second-largest economy.

“They didn’t mention capital controls at all and that removed lingering fears about control for now,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl. “In addition, they held rates, which means the yield advantage will remain.”

The baht rose 0.1 percent to 29.35 per dollar as of 3:34 p.m. in Bangkok after dropping as much as 0.4 percent to 29.48 earlier, the weakest level since March 19, according to data compiled by Bloomberg. It has rallied 4.2 percent this year and touched 29.08 on March 20, the strongest level since 1997.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose two basis points, or 0.02 percentage point, to 5.22 percent.

Recent appreciation in the baht has been “excessive,” Bank of Thailand Governor Prasarn Trairatvorakul said on March 20, amid speculation policy makers would consider measures to slow inflows of overseas capital. Special measures to stem inflows aren’t necessary now, Prasarn said the same day.

Interest Rates

The central bank has rebuffed repeated calls by Finance Minister Kittiratt Na-Ranong for lower borrowing costs, as it grapples with rising inflows that have stoked credit growth and asset prices. Thailand’s policy rate compares with a maximum of 0.25 percent in the U.S. and 0.1 percent in Japan.

Global funds purchased $9.6 billion more sovereign debt than they sold this year through yesterday, according to data from the Thai Bond Market Association.

The yield on Thailand’s 3.625 percent notes due June 2023 rose one basis point to 3.53 percent, according to data compiled by Bloomberg. It has averaged 3.63 percent this year.

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