Bloomberg News

Baht Completes Biggest Weekly Gain in Two Years on Fund Inflows

July 08, 2011

July 8 (Bloomberg) -- Thailand’s baht posted its biggest weekly gain since December 2008 after global funds added to holdings of the nation’s assets on optimism the conclusion of July 3 elections will usher in political stability.

The currency reached a one-month high after exchange data showed international investors bought $469 million more Thai shares than they sold this week through yesterday. The baht dropped 1.4 percent last month on concern the elections would spark instability. Incoming Prime Minister Yingluck Shinawatra said policy makers will let the currency appreciate to tame inflation, the Wall Street Journal reported yesterday. The baht rose for a second day ahead of a rate review by the central bank next week.

“The baht got a boost from fund inflows into the nation on optimism the country will have a stable government for now,” said Kozo Hasegawa, a currency trader at Sumitomo Mitsui Banking Corp. in Bangkok. “Yingluck also showed intention to let the baht rise, while the market is also pricing in a rate hike next week. The baht will stay on a bullish bias for now.”

Yingluck told reporters today in Bangkok that she needed more time to formulate detailed policies on foreign exchange and fiscal spending.

She said her “principle” on foreign exchange policy is to “let the currency exchange as followed by the market.” Asked about how that may affect central bank intervention in the currency, she said “my comment on that will wait until we have the clear policy.”

Borrowing Costs

The baht climbed 1.9 percent this week, the most since the five days ended Dec. 12, 2008, to 30.24 per dollar as of 4:01 p.m. in Bangkok, according to data compiled by Bloomberg. The currency advanced 0.4 percent today and reached 30.17 earlier, the strongest level since June 6. It may advance toward 30 by the end of next week, Hasegawa said.

The Bank of Thailand, which has boosted the benchmark one- day bond repurchase rate four times this year, will lift it by a quarter of a percentage point to 3.25 percent on July 13, according to all of 13 economists surveyed by Bloomberg.

Consumer prices rose 4.06 percent from a year earlier in June following a 4.19 percent increase the previous month that was biggest since September 2008, government data showed on July 1.

The one-year onshore interest-rate swap, the fixed cost needed to receive a floating payment, increased 25.5 basis points this week and 9.5 basis points today to 3.465 percent. The rate reached 3.475 percent earlier, the highest since November 2008. A basis point is 0.01 percentage point.

‘Stable Coalition Government’

The yield on the 5.25 percent bonds due May 2014 rose five basis points this week and was little changed today at 3.78 percent, according to data compiled by Bloomberg.

“Investors have stayed away from bonds with longer maturity because of inflation concern,” said Bandid Nijathaworn, chairman of Thai Bond Market Association. “Inflation will accelerate, forcing the central bank to raise its benchmark rates further. The incoming government’s policies for increased spending may also put more pressure on the inflation.”

Foreigners have purchased a net 36 billion baht ($1.2 billion) of local bonds this week as concern about political instability subsides following the election, he said.

--With assistance from Daniel Ten Kate, Anuchit Nguyen and Suttinee Yuvejwattana. Editors: Ven Ram, James Regan

To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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