Baht at One-Year Low on Recession; Bank of Thailand Holds Rate

Thailand’s baht fell to a one-year low as the nation entered a recession for the first time since 2009, and the central bank kept its benchmark interest rate unchanged for a second straight meeting today.

The Bank of Thailand left its benchmark interest rate at 2.5 percent as predicted by 19 of 20 economists surveyed by Bloomberg. One forecast a 25 basis point cut. Global funds sold $530 million more Thai bonds than they bought this month through yesterday and pulled a net $791 million from stocks, official data show, amid speculation the Federal Reserve will pare stimulus that’s fueled demand for emerging-market assets.

“Basically, sentiment for emerging-market assets is weak due to speculation about the Fed’s tapering,” said Tsutomu Soma, a manager of the fixed-income business unit at Rakuten Securities Inc. in Tokyo. “Funds are flowing out from emerging markets. On top of that, Thailand’s growth concerns are adding downward pressure.”

The baht dropped 0.5 percent to 31.82 per dollar as of 3:41 p.m. in Bangkok after touching 31.83 earlier, the weakest level since July, 2012, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 21 basis points, or 0.21 percentage point, to 7.19 percent.

The baht’s exchange rate reflects economic fundamentals and investors are still confident in the nation’s economic policies, central bank Governor Prasarn Trairatvorakul said yesterday. The currency’s decline is not a concern, he said.

Gross domestic product unexpectedly decreased 0.3 percent in the three months through June from the previous quarter, when it contracted a revised 1.7 percent, the National Economic & Social Development Board said Aug. 19. The agency cut its 2013 expansion forecast to 3.8 percent to 4.3 percent from 4.2 percent to 5.2 percent.

The yield on the 3.625 percent sovereign notes due June 2023 rose one basis point to 3.99 percent, the highest level since Aug. 2, data compiled by Bloomberg show.

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