Thai Baht Falls to Near 10-Month Low on Politics, Stock Slump

By Shanthy Nambiar

Aug. 19 (Bloomberg) -- Thailand's baht fell to the lowest in almost 10 months 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 stocks. Government bonds advanced.

The baht has declined 1.6 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 0.7 percent to 34.08 per dollar as of 4:55 p.m. in Bangkok, according to data compiled by Bloomberg. It earlier fell to 34.10, the weakest it's been since Oct. 30.

The Bank of Thailand's senior director Pongpen Ruengvirayudh said today 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 said last week further interest-rate increases may not be needed to temper inflation, which accelerated to a decade-high 9.2 percent in July. Policy makers, who increased the one-day bond repurchase rate to 3.5 percent last month, meet Aug. 27 to decide on rates.

Bonds Gained

Ten-year government bonds advanced, as stock declines fueled demand for lower risk assets. The benchmark SET Index of shares dropped 0.9 percent today, tracking regional declines.

The yield on the 5.125 percent bond due March 2018 fell 6.6 basis points to 4.64 percent, according to the Thai Bond Market Association. The price rose 0.51198, or 5.11 baht per 1,000 baht face amount, to 103.6874. A basis point is 0.01 percentage point.

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.

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