Thai Baht Declines to Nine-Month Low on Politics, Stock Sales

By Shanthy Nambiar

Aug. 19 (Bloomberg) -- Thailand's baht fell to a nine-month low on speculation a possible disbanding of the ruling party may delay Prime Minister Samak Sundaravej's plans to boost spending and economic growth, curbing demand for the nation's assets.

The baht has declined 1.5 percent this month as global funds cut their stock holdings amid political turmoil and after a central bank official said there is ``no need to panic'' about the currency's fall. The nation's Election Commission will next month decide whether to pursue a formal request through the Constitutional Court to disband Samak's People Power Party.

``We have the whole motion on-going against the People Power Party,'' said Vishnu Varathan, a regional economist at Forecast Singapore Pte. ``The situation in Thailand has gotten much worse. It isn't looking very Thai-baht friendly. Whoever can get out will get out of their positions.''

The currency fell 0.5 percent to 34.03 per dollar as of 1:57 p.m. in Bangkok, according to data compiled by Bloomberg. That's the weakest it's been since Nov. 9.

The Bank of Thailand's senior director Pongpen Ruengvirayudh today said the central bank will support the baht, without confirming whether it bought the currency. Equity outflows are also putting pressure on the baht as foreign investors continue to pull out of local stocks, Pongpen said.

``We will enter the market if needed, but I can't tell whether we do it now or not,'' Pongpen told reporters in Bangkok. ``The money is flowing out steadily, but the amount is not that great.''

Outflows

The Supreme Court last month convicted Yongyuth Tiyapairath, a senior member of Samak's party, of buying votes in the December national elections. The Election Commission in February accused Yongyuth of vote fraud.

The People Power Party, formed by supporters of former Prime Minister Thaksin Shinawatra after his Thai Rak Thai party was disbanded in May 2007 for election offences, now faces dissolution itself under constitutional rules.

``It is going to be difficult for the Bank of Thailand to defend attacks against the baht,'' Varathan said. ``The central bank is recanting a bit on its hawkish stance on rates.''

Bank of Thailand Governor Tarisa Watanagase last week said further interest-rate increases may not be needed to temper inflation. Policy makers, who increased the one-day bond repurchase rate to 3.5 percent in July, meet Aug. 27 to decide on rates.

Overseas fund managers sold $194 million more Thai stocks than they bought this month, according to data compiled by Bloomberg. The Office of Auditor-General is also investigating whether Finance Minister Surapong Suebwonglee misused his power by granting a contract to a company without competitive bidding, The Nation newspaper reported today.

The inflation rate rose to 9.2 percent in July, the highest since 1998, due to surging oil and food costs.

To contact the reporter for this story: Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net.