Baht Falls to Five-Month Low

Lingering fear of capital controls and continued fund outflow risks are weighing on the baht

 

BANGKOK – Thailand’s baht fell to a five-month low after foreign funds pulled money from local assets amid speculation the government will take steps to control fund flows and the Federal Reserve will reduce its stimulus.

Overseas investors have sold $605 million more sovereign debt than they bought since the end of April and pulled $345 million from local stocks in the past two days, official data show. Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said May 29 measures have been prepared to combat baht volatility although they may not be used if they aren’t necessary. Moody’s Investors Service said this week a program to buy rice above the market price is credit negative.

“Lingering fear of capital controls and continued fund outflow risks are weighing on the baht,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “The comment from Moody’s on Thai credit added to the negative sentiment. I am bearish on the baht.”

The baht dropped 0.5 percent to 30.55 per dollar as of 9:34 a.m. in Bangkok, trimming this year’s advance to 0.1 percent, according to data compiled by Bloomberg. It touched 30.59 earlier, the weakest level since Jan. 2.

The baht touched 28.56 on April 22 and April 19, the strongest level since July 1997, prompting policy makers to consider steps to stem fund inflows. Finance Minister Kittiratt Na-Ranong said May 29 that an amended regulation enables the central bank to set conditions or collect fees on funds flowing in or out of the country.

Rice Plan

Kansas City Fed President Esther George yesterday called for a reduction in the central bank’s bond-buying, while San Francisco Fed President John Williams said a “modest adjustment downward” was possible “as early as this summer.” The monetary authority’s $85 billion a month of purchases has increased fund flows to emerging markets.

Moody’s said that losses from the rice-buying plan, started in October 2011 to boost farmer incomes, inhibit the government’s goal of balancing the budget by 2017.

One-month implied volatility in the baht, a measure of expected moves in the exchange rate used to price options, climbed nine basis points, or 0.09 percentage point, to 6.63 percent. The yield on the 3.625 percent government bonds due June 2023 was steady at 3.64 percent, data compiled by Bloomberg show. The rate was the highest since March 12.