Baht Declines to Four-Month Low on First Rate Cut Since October

Thailand’s baht fell to a four-month low as the central bank lowered borrowing costs for the first time since October. Government bonds fell, driving the 10-year yield to a one-month high.

The Bank of Thailand cut its one-day bond repurchase rate by a quarter of a percentage point to 2.5 percent, as forecast by 15 of 24 economists surveyed by Bloomberg. One predicted a half-point reduction and eight saw no change. The Dollar Index, which tracks the greenback against six major counterparts, traded near its strongest since July 2010 after a report showed yesterday that U.S. consumer confidence is at a five-year high.

“The baht has already priced in today’s cut and so we won’t see a big reaction,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “Basically, we are seeing a strong dollar trend on the back of good data out of the U.S. at this moment as well.”

The baht fell 0.7 percent to 30.22 per dollar as of 3:02 p.m. in Bangkok and touched 30.23 earlier, the weakest level since Jan. 15, according to data compiled by Bloomberg. The currency was poised for a second monthly decline, falling 3 percent in May.

The baht has advanced 1.2 percent this year, the second-best performance among the 11 most-traded Asian currencies after China’s yuan. 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 6.71 percent.

Intervention Plan

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

Thailand doesn’t want to use measures to curb capital inflows, Areepong Bhoocha-Oom, permanent secretary of finance ministry, said in an interview in Singapore today. “If you start to go to the measures of capital control, the pension funds, all these things, the U.S. and the U.K., they cannot invest in Thailand anymore or in Asean anymore,” he said.

“Introduction of capital measures is probably not desirable as that may encourage fund outflows from Thailand,” Dai-ichi Life Research’s Nishihama said. “The current level of the baht does not create any urgency for policy makers to introduce such measures either.”

The yield on the 3.625 percent sovereign notes due June 2023 rose four basis points to 3.46 percent, data compiled by Bloomberg show. That’s the highest level since April 26.

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