Thai Baht Drops, Bonds Advance as Central Bank Holds Key Rate

Thailand’s baht fell for a second day after the central bank kept borrowing costs unchanged in its first monetary policy meeting since a May 22 coup.

The Bank of Thailand left the benchmark rate at 2 percent, the lowest level since 2010. The decision was predicted by 19 of 22 economists surveyed by Bloomberg, while three forecast a 25 basis point cut. The baht has climbed 1 percent in June, the best performance in Asia, after the military ended seven months of street protests and revived public spending. Ten-year government bonds gained today.

“The need for monetary policy to pick up the fiscal slack has been reduced with the junta placing the economy on the front burner,” said Weiwen Ng, Singapore-based economist at Australia & New Zealand Banking Group Ltd. “The unlocking of fiscal spending should manifest itself in a V-shaped recovery for Thailand.”

The baht retreated 0.2 percent to 32.510 per dollar as of 4:08 p.m. in Bangkok, according to data compiled by Bloomberg. It traded 0.1 percent lower at 32.494 before the rate decision and touched 32.534 earlier, the weakest level since June 10.

The central bank trimmed its economic growth forecast for 2014 to 1.5 percent from 2.7 percent because of the risks to tourism and exports, Assistant Governor Paiboon Kittisrikangwan said at media briefing in Bangkok.

Steady Rates

The economy may contract 0.5 percent in the first half of the year, and expand 3.4 percent to 3.5 percent in the remaining six months, according to a Bank of Thailand statement issued after the decision.

“We maintain our view that the BOT has come to the end of its current rate-cut cycle and will hold rates steady for an extended period,” Rahul Bajoria, a Singapore-based economist at Barclays Plc, wrote in a report after the central bank’s meeting. Bank of Thailand indicated “a bias to keep policy on the looser side,” he said.

The yield on the government’s 4.5 percent bonds due April 2024 fell one basis points, or 0.01 percentage point, to 3.87 percent, according to data compiled by Bloomberg. It was down two basis points before the rate announcement. Ten-year yields increased in most Asian markets, with Taiwan’s climbing the most this year, after an unexpected pickup in U.S. inflation drove Treasury yields higher.

Thailand’s economy, which contracted 0.6 percent in the first three months from a year earlier, will avoid a technical recession and start to recover this quarter and then gather momentum in the period through September, Don Nakornthab, the central bank’s director of macroeconomic policy, said June 10.

One-month implied volatility in the baht, a measure of expected exchange-rate moves used to price options, climbed 22 basis points to 4.93 percent.

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