Baht Has Worst Week This Month as GDP Forecast Cut; Bonds Gain

Thailand’s baht completed its worst week this month on concern the nation’s recession will deter foreign inflows while the government lowered its growth estimate for 2013. Bonds advanced.

The currency weakened today as Barclays Plc cut the country’s 2013 economic expansion forecast to 2.5 percent from 3.5 percent. The U.K. lender cited a domestic credit crunch, waning stimulus and lack of confidence. The Finance Ministry today trimmed its estimate for gains in gross domestic product this year to 3.7 percent from 4.5 percent. Southeast Asia’s second-largest economy shrank in the first two quarters, while exports fell for three months through July.

The baht dropped 0.6 percent from a week ago to 31.31 per dollar in Bangkok, the biggest loss since the five days ended Aug. 30, according data compiled by Bloomberg. The currency fell 0.4 percent today and has retreated 1.4 percent from a two-month high of 30.88 on Sept. 20 touched after the Federal Reserve decision to maintain its record stimulus.

“The economy is likely to remain on the downtrend in the second half due to the slowdown in exports,” said Thammarat Kittisiripat, an economist in Bangkok at TMB Bank Pcl. “The baht will depreciate and fund outflows in the short term will continue.”

One-month implied volatility, a measure of expected swings in the exchange rate used to price options, decreased 12 basis points from Sept. 20 to 7.71 percent. The gauge climbed 6 basis points, or 0.06 percentage point, today.

Export Outlook

The nation’s exports will increase 1.8 percent this year, instead of 5.5 percent, Somchai Sujjapongse, head of the Fiscal Policy Office, said in Bangkok today. The Bank of Thailand is concerned about sluggish private demand and labor shortages, Governor Prasarn Trairatvorakul said separately.

The baht is likely to underperform its Southeast Asian peers, such as Malaysia’s ringgit and the Philippine peso, given modest economic growth and weakening external balances, Barclays said in the report. It will fall to 31.5 per dollar by March 31 and 31.75 by June 30, the U.K. lender forecasts.

Overseas funds sold $211 million more local stocks than they bought this week, according to exchange data, taking net sales this year to $3.3 billion. The benchmark SET Index has declined 4.9 percent since Sept. 20.

The yield on the 3.625 percent bonds due June 2023 fell seven basis points this week to 3.94 percent, data compiled by Bloomberg show, following a 37 basis points decrease last week that was the biggest drop since August 2011. The rate increased eight basis points today.

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