Baht Falls With Thai Rate on Hold as U.S. Seen Raising Benchmark

  • Global investors pulled funds from Thai assets ahead of Fed
  • ING sees more baht losses to support exports and growth

The baht fell following Tuesday’s biggest gain in two months as Thailand kept local interest rates on hold, while the Federal Reserve will likely tighten policy later in the day.

Higher U.S. rates may boost the allure of bonds in the world’s biggest economy just as capital is flowing out of Thailand. Ten-year Treasuries, a benchmark used in pricing loans and mortgages, yield 2.27 percent compared with 2.61 percent for similar Thai notes.

The baht dropped 0.4 percent to 36.05 a dollar as of 4:06 p.m. in Bangkok, after rising 0.7 percent Tuesday, according to data compiled by Bloomberg. It has lost 8.8 percent this year, the third-worst performance in Asia after the Malaysian ringgit and Indonesia’s rupiah. The Bank of Thailand kept its benchmark rate at 1.5 percent, as forecast by 22 of 23 economists surveyed by Bloomberg, while futures show 78 percent odds of a Fed hike.

“Most people were probably long dollars versus the Thai baht, and as you go into the Fed there is risk on both sides that the dollar can rally afterward or it can fall quite a bit,” Sean Yokota, Singapore-based head of Asia strategy at Skandinaviska Enskilda Banken AB, said before the Thai rate decision was announced. “In terms of the BOT, I don’t think they will act 24 hours ahead of the Fed.”

Global funds have pulled a net $4.3 billion from Thai stocks and bonds this year as the prospect of a U.S. rate increase sapped demand for emerging-market assets. ING Groep NV sees the baht depreciating to 37 a dollar by mid-2016 as policy makers tolerate a weaker currency to bolster exports and economic growth, Prakash Sakpal, the bank’s Singapore-based economist, wrote in a research note Wednesday.

Thailand’s overseas shipments contracted in the first 10 months and analysts expect the economy to expand 2.7 percent this year, compared with the 0.9 percent pace in 2014, the slowest since 2011. Monetary policy will remain accommodative and the nation can cope with the impact from higher U.S. rates, according to a central bank statement on Wednesday.

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