Thai Baht Falls Most in a Year on Plan to Invest Reserves Abroad

The baht dropped the most in more than a year after the Bank of Thailand said its board approved a plan to allow it to purchase corporate bonds overseas.

The central bank will be permitted to use its reserves to buy debt issued by state-owned companies abroad, Siri Garnjarerndee, a member of the board and monetary policy Committee, told reporters in Bangkok. Finance Minister Kittiratt Na-Ranong said a required holding period for foreign bond investors to curb inflows into Thailand hasn’t been discussed at meetings between government agencies. Thai-language newspaper Post Today reported today that such a rule may be introduced.

The baht dropped 0.8 percent, the most since March 2012, to 29.15 per dollar as of 3:23 p.m. in Bangkok, according to data compiled by Bloomberg. That pared its advance this year to 4.9 percent, the best performance among the 11 most-traded Asian currencies. The baht touched 28.56 on April 22 and April 19, the strongest level since a devaluation in July 1997 that sparked the Asian financial crisis.

“The approval of bond purchases overseas means more outflows, and investors may have used this as an excuse to take profits,” said Pareena Phuangsiri, a Bangkok-based analyst at Kasikornbank Pcl. “The extent of foreign-exchange gains may be limited.”

The currency earlier rose as much as 0.1 percent after overseas investors increased holdings of Thailand’s bonds. Global funds bought $2.2 billion more sovereign debt than they sold this month through yesterday, taking this year’s net purchases to $12 billion, Thai Bond Market Association data show.

Beyond Fundamentals

Thailand’s central bank is worried about the baht’s rally this year that took it to a 16-year high this week, Assistant Governor Chantavarn Sucharitakul said yesterday. The comment came after Governor Prasarn Trairatvorakul said April 19 that the baht has started to move beyond its fundamentals and Assistant Governor Paiboon Kittisrikangwan said on April 22 that it has risen “too much and too quickly.”

The Bank of Thailand may introduce a minimum holding period for foreign buyers of domestic bonds, the Post Today reported, citing an unidentified central bank official. Overseas investors may have to pay a penalty for selling before the end of the lock-in period, it said.

“We don’t think the authorities will deploy such a measure,” said Wee-Khoon Chong, a strategist in Hong Kong at Societe Generale SA. “Such a measure is damaging and not effective, and most importantly, it will make a serious dent in confidence in Thailand.”

Government bonds were steady. The yield on the 5.125 percent debt due March 2018 was little changed at 3.13 percent, data compiled by Bloomberg show. The rate reached 3.1 percent on April 18, the lowest level for a benchmark five-year note since November 2010.

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