Thai Baht Falls to 3-Year Low on Fed as Stocks to Bonds Slide

Thailand’s baht fell to the weakest level since August 2010 after Federal Reserve minutes showed officials support a cut in stimulus this year should the U.S. economy improve. Stocks and government bonds declined.

The baht slipped beyond 32 per dollar for the first time since July 2012 as official data showed global funds sold $582 million more Thai bonds than they bought this month through yesterday and pulled a net 30.6 billion baht ($953 million) from equities. A government report this week showed Southeast Asia’s second-largest economy entered a recession for the first time since 2009.

“There’s concern of fund outflows from emerging markets due to the Fed’s tapering, which is weighing on regional currencies,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “Growth in emerging countries has been slowing, hurting sentiment further.”

The baht dropped 0.8 percent to 32.09 per dollar as of 4:38 p.m. in Bangkok and touched a three-year low of 32.17 earlier, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 27 basis points, or 0.27 percentage point, to 7.41 percent, the highest since July 10.

Fed officials were “broadly comfortable” with Chairman Ben S. Bernanke’s plans to start reducing bond buying later this year should the economy improve, with a few saying tapering may be needed soon, minutes of their July meeting showed.

Cutting Forecasts

Thailand’s gross domestic product unexpectedly decreased 0.3 percent in the three months through June from the previous quarter, when it contracted 1.7 percent, the National Economic & Social Development Board said Aug. 19. The agency cut its 2013 expansion forecast to between 3.8 percent and 4.3 percent from an earlier estimate of 4.2 percent-5.2 percent.

The Bank of Thailand lowered its full-year growth estimate last month to 4.2 percent from an earlier projection of 5.1 percent. The central bank will need to cut its forecast again, probably in October, Rahul Bajoria, an economist at Barclays Plc in Singapore, wrote in a research note yesterday.

The central bank left its benchmark interest rate unchanged at 2.5 percent yesterday as rising household debt and capital outflows reduced scope for monetary easing.

Current Account

The nation’s current-account balance posted a deficit every month in the second quarter, central bank data show. Exports, which account for about two-thirds of the economy, probably increased 1 percent in July following declines of 3.4 percent in June and 5.3 percent in May, according to the median estimate of economists in a Bloomberg survey before customs data next week.

“Investors are becoming more bearish on the baht due to growth concern,” Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl, said after the rate decision yesterday. “Fundamental factors encourage foreigners to sell the baht and Thai assets.”

Malayan Banking Bhd. expects the central bank to sell dollars to limit the baht’s fall, according to a research note. The Bank of Thailand will step in “in principle” if the baht weakens too fast, Deputy Governor Pongpen Ruengvirayudh said today without giving details.

The SET Index of shares declined for a sixth straight day, the longest losing streak since February, to its lowest close since December 11. The benchmark index dropped 0.3 percent to 1,351.81.

The yield on the 3.625 percent sovereign notes due June 2023 rose 23 basis points to 4.22 percent, the highest since the securities were issued in 2010, data compiled by Bloomberg show. Credit-default swaps insuring Thailand’s debt against non-payment climbed five basis points to 147 basis points yesterday, the highest since July 2012, according to data provider CMA.

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