Baht Weakens Most Since January After Fed Signals Rate Increase

Thailand’s baht fell the most since January and bonds dropped on Federal Reserve Chair Janet Yellen’s comment that interest rates could be raised “around six months” after the central bank ends its stimulus program.

The Fed announced another $10 billion reduction of its monthly bond buying yesterday to $55 billion and said the purchases could end in the second half of this year. The Bank of Thailand reduced its key rate on March 12 to 2 percent from 2.25 percent after prolonged political unrest curbed local demand and hurt tourism. There is scope to ease monetary policy further, central bank Assistant Governor Paiboon Kittisrikangwan said after the decision.

“The prospect of a U.S. rate hike is dollar-positive and weighs on emerging-market currencies,” said Koji Fukaya, chief executive officer and foreign-exchange strategist at FPG Securities Co. in Tokyo. “With lingering political unrest that hurts growth, there remains speculation Thailand may cut further.”

The baht slumped 0.7 percent, the most since Jan. 2, to 32.38 per dollar as of 3:23 p.m. in Bangkok, according to data compiled by Bloomberg. It rallied 1 percent over the previous five days. The currency has weakened 3.9 percent since anti-government protests began on Oct. 31. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 13 basis points to 6.39 percent.

Rating Reassessment

The Thai Constitutional Court will meet tomorrow to consider a petition seeking to annul the nation’s Feb. 2 election, court President Charoon Intacharn told reporters in Bangkok yesterday. Demonstrators will continue protests until Prime Minister Yingluck Shinawatra gives up power, Suthep Thaugsuban, the movement’s leader, told supporters this week.

A prolonged political deadlock in Thailand lasting into the second half of the year may prompt a reassessment of its rating outlook, according to Fitch Ratings.

“A continued blockage in the formation of a full government, or a government with authority, into the second half of the year could lead us to reassess the rating outlook,” Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, said in an interview in Singapore today.

Thailand’s economic growth potential is estimated at 4 percent to 5 percent and may expand below that this year, Bank of Thailand spokeswoman Roong Mallikamas told reporters today in Bangkok.

The yield on the 3.625 percent sovereign bonds due June 2023 rose one basis point, or 0.01 percentage point, to 3.7 percent, data compiled by Bloomberg show.

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