The baht headed for its biggest monthly advance since September as gains in global stocks improved risk sentiment, offsetting concern Thailand’s continuing political unrest is damaging growth.
The MSCI Asia Pacific Index of shares climbed 2.5% in February, snapping three months of declines, and the Standard & Poor’s 500 gauge jumped 4%, the most since October.
Twenty-two people have been killed since protests against Prime Minister Yingluck Shinawatra’s government began in late October. Gross domestic product increased 0.6% in the fourth quarter from a year earlier, the least since the first three months of 2012, official data showed Feb 17.
“The baht saw some recovery in line with improving emerging-market sentiment in general,” said Tsutomu Soma, manager of the fixed-income business unit at Rakuten Securities Inc. in Tokyo. “But I don’t think we will see aggressive buying as political unrest is making investors reluctant to buy Thailand.”
The baht rose 1.2% in February to 32.63 per dollar as of 9:11 am in Bangkok, according to data compiled by Bloomberg. The currency fell 0.1% on Friday and 0.4% this week. It has dropped 4.6% since the protests started Oct 31, the worst performance in Asia.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, slumped 104 basis points this month and 24 basis points this week to 6.38%. The gauge fell six basis points, or 0.06 percentage point, on Friday.
Borrowing Costs
Global funds sold $679 million more local equities than they bought this month through yesterday and offloaded a net $79 million of Thai bonds, official data show.
Two-year government notes rose this month on speculation the central bank will reduce borrowing costs to support the economy. The Bank of Thailand unexpectedly held its key interest rate unchanged at 2.25% on Jan 22, with monetary policy committee members voting four to three in favor of the decision. The rate will next be reviewed on March 12.
The yield on the 3.125% bonds due December 2015 dropped 16 basis points from a month ago to 2.29%, data compiled by Bloomberg show. The yield, which declined one basis point on Friday, is the lowest since the bonds were sold in 2010.