Baht Falls Toward 4-Month Low on Fed Signal, Thai Rate Review

Thailand’s baht fell toward a four-month low before U.S. data forecast to show an improvement in consumer confidence amid speculation the Federal Reserve will reduce stimulus that’s boosted demand for emerging-market assets.

The currency was poised for a second monthly decline as the Bank of Thailand prepares to meet tomorrow, with 15 of 24 economists surveyed by Bloomberg predicting a 25 basis point cut in the one-day bond repurchase rate to 2.5 percent. Eight see no change and one a half percentage point reduction. Fed Chairman Ben S. Bernanke said last week the central bank may slow the pace of quantitative easing.

“The main theme is still concern the Fed will reduce quantitative easing, which is causing dollar strength,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl. “Investors and traders have been pricing in a rate cut in Thailand, but with the strong dollar trend, they don’t have to bring a big cut.”

The baht dropped 0.5 percent to 30.01 per dollar as of 3:16 p.m. in Bangkok, according to data compiled by Bloomberg. The currency, which fell 2.3 percent this month, touched 30.10 on May 23, the weakest level since Jan. 15.

The Dollar Index, which tracks the greenback against six major counterparts, rose 0.3 percent to 83.935. It reached the highest in almost three years on May 23. The Conference Board’s index of consumer sentiment probably climbed to 71 in May, a level last reached in November, according to the median estimate in a Bloomberg survey.

Capital Measures

Finance Minister Kittiratt Na-Ranong said today that proposed measures to deal with increased capital inflows will be published in the Royal Gazette in the next two days.

The central bank will intervene in the foreign-exchange market should the baht move “excessively” while any measures to curb fund inflows would be used as “a last resort,” Bank of Thailand Deputy Governor Pongpen Ruengvirayudh said today.

“The Thai baht is under pressure on the back of talk on possible implementation of capital control,” said Wee-Khoon Chong, a strategist in Hong Kong at Societe Generale SA. “We believe capital control measures can be potentially damaging in denting market confidence in Thailand. An introduction of capital control along with the rate cut may weaken the baht further.”

Central bank Governor Prasarn Trairatvorakul said May 21 that monetary policy could be eased if the economy slows. The National Economic and Social Development Board scaled back its forecast for 2013 growth to as much as 5.2 percent on May 20 from 5.5 percent. Gross domestic product increased 5.3 percent in the first quarter, compared with 19.1 percent in the previous three months, official data showed May 20.

Baht Rally

Still, the baht remains Asia’s best-performing currency this year with a gain of 1.9 percent. It reached 28.56 on April 22 and April 19, the strongest level since July 1997.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell four basis points, or 0.04 percentage point, to 6.62 percent today.

Thai bonds will benefit from a cut in interest rates, Tim Condon, head of Asian research at ING Groep NV, wrote in a research note to clients today. He lowered his forecast for the 10-year yield to 3.3 percent from 3.8 percent.

The yield on the 3.625 percent debt due June 2023 rose two basis points to 3.4 percent, data compiled by Bloomberg show.

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