Baht declines to a three-year low

Baht declines to a three-year low

Thailand’s baht fell to the weakest level in more than three years on concern prolonged political unrest will damp investment and hurt the economy. Bonds gained.

More than 1,000 anti-government protesters have surrounded Prime Minister Yingluck Shinawatra’s home in Bangkok, as she criticised the opposition Democrat party’s plan to boycott a Feb 2 election.

Suthep Thaugsuban, who is leading the demonstrators, has vowed to thwart the polls, which were announced after Yingluck dissolved the parliament on Dec 9 amid mass protests. The Thai currency has lost 4.9 percent in the past two months as the main stock index dropped 7.9 percent.

“Investors aren’t buying the Thai baht if this political situation continues,” said Kozo Hasegawa, a foreign-exchange trader at Sumitomo Mitsui Banking Corp. in Bangkok. The baht may gradually weaken toward 32.9 per dollar as the political conflict threatens the economy, he said.

The baht depreciated 0.4 percent today to 32.75 per dollar as of 9.55 am in Bangkok, according to data compiled by Bloomberg. That’s the weakest level since June 7, 2010.

Thailand Election Commission secretary-general Puchong Nutrawong said Dec 21 the boycott would not  affect the vote. Southeast Asia’s second-biggest economy expanded 2.7 percent in the third quarter, the least in more than a year.

As the effectiveness of the election to end the street protests is now in doubt, political certainty looks set to last longer and the baht will come under more pressure, Credit Agricole CIB’s Hong Kong-based analyst Anthony Lam wrote in a research note today.

One-month implied volatility in the baht, a measure of expected moves in the exchange rate used to price options, fell 10 basis points, or 0.1 percentage point, to 6.14 percent.

Government bonds gained. The yield on the 3.625 percent notes due June 2023 declined one basis point to 4.02 percent, data compiled by Bloomberg show.

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