Baht rises to 1-week high

Thailand's baht rose to a one-week high and bonds gained after US Federal Reserve chairman Ben S Bernanke said the United States economy will continue to need monetary stimulus, easing concerns about outflows from emerging markets.

  • Published: 11/07/2013 at 10:42 AM
  • Newspaper section: breakingnews

Bernanke said on Wednesday that "highly accommodative" policy will be needed for the "foreseeable future," driving up exchange rates and stocks across Asia. The Bank of Thailand kept its benchmark interest rate at 2.5% on Wednesday, while cutting estimates for 2013 economic growth and exports.

"With Bernanke's comments, sentiment toward emerging markets improved,” said Koji Fukaya, chief executive officer and foreign-exchange strategist at FPG Securities Co in Tokyo. "However, the basic trend has not turned around yet."

The baht climbed 0.6% to 31.10 per US dollar as of 8.56am in Bangkok and reached 31.04 earlier, the strongest level since July 3, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, jumped 37 basis points, or 0.37 percentage point, to 7.65%.

Gross domestic product may increase less than 5% this year, the central bank said on Wednesday. New forecasts for the economy and export growth will be released on July 19. The Bank of Thailand's Monetary Policy Committee cut borrowing costs by a quarter of a percentage point in May after the baht reached a 16-year high of 28.56 per dollar in April.

'Hot Money'

"We think the main reason the MPC cut in May was the pressure from hot money inflows," Tim Condon, head of Asian research at ING Groep NV in Singapore, wrote in a research report on Thursday. "With the panic subsiding, we think the hot money will return and the government will counter with capital controls rather than interest rates." ING predicts the baht will appreciate to 29 per dollar by year-end.

The yield on the 3.625% government bonds due June 2023 dropped one basis point to 3.72%, data compiled by Bloomberg show. Thai local-currency sovereign notes have posted a loss of 0.7% over the past month as Bernanke signaled a possible end to monetary stimulus, an index compiled by HSBC Holdings Plc shows.

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