Baht Falls as Bank of Thailand Suggests Lenders Sell Currency

March 27 (Bloomberg) -- The Thai baht dropped against the dollar as the Bank of Thailand suggested domestic lenders sell the currency after it climbed to a nine-year high.
Deputy Governor Atchana Waiquamdee said today that banks should switch foreign-exchange positions to the level they held on Dec. 31, which proceeded a two-week decline in the baht. The currency has climbed since then, eroding exports that account for about 60 percent of Thailand's gross domestic product.
``The central bank's comments probably caused people who had a speculative position on the appreciation in the baht to close such positions,'' said Hideki Hayashi, a Tokyo-based foreign-exchange strategist at Shinko Securities Co. ``However, in the long term, it is difficult to stop such a move.''
Thailand's currency dropped 0.7 percent to 35.08 to the dollar in onshore trading as of 1:00 p.m. in Bangkok, according to data compiled by Bloomberg. That pared its gain to 1.8 percent this year. It may rise beyond 34.50 by the end of June, Hayashi said.
The baht last year advanced 16 percent against the dollar, prompting Thailand to impose restrictions on Dec. 18 that included penalties for withdrawing funds invested in the country for less than a year. Limits on trading have reduced the supply of currency outside of Thailand, creating two exchange rates. In the offshore market, the baht gained 2 percent to 32.40, after a 4 percent decline yesterday.
Current Account Surplus
The Bank of Thailand today also asked lenders to report holdings of currencies every day, Deputy Governor Atchana said in an interview with Business Radio. The cooperation was sought through trade associations of commercial banks, she said.
Emmanuel Ng, a currency strategist at Oversea-Chinese Banking Corp. in Singapore, said there's a March 27 deadline for banks to reposition their dollar holdings to year-end levels, although that has yet to be officially announced.
``We seek cooperation from the associations of banks to monitor their members and to stop those who try to speculate on the exchange rate,'' Bank of Thailand Governor Tarisa Watanagase said in Bangkok yesterday. ``We saw information that some banks have been manipulating on the baht.''
She denied market speculation that the central bank may fix the baht at 36 to the dollar.
``There are lots of rumors floating around, including the Bank of Thailand might consider a currency peg,'' said Philip Wee, senior currency strategist at DBS Bank in Singapore. ``We are more cautious this week in terms of selling the dollar.''
March 27 Deadline
Gains in the baht have been driven by a slowdown in imports that has widened the nation's trade advantage.
A central bank report on March 30 will probably show the current account surplus held at or above $1 billion in January for a third month, according to the median forecast of seven economists surveyed by Bloomberg News. The surplus rose above $1 billion in November for the first time since December 2004.
``The baht's strength will have a greater impact on exports in the second quarter, as a number of exporters have complained of lower overseas orders because they cannot compete with producers in other countries,'' Thanavath Phonvichai, an economist at the University of Thai Chamber of Commerce, said on March 26.
The Asian Development Bank today raised its growth forecast for Asia excluding Japan. Asia's developing economies will expand 7.6 percent in 2007, faster than the 7.1 percent estimate in September, the Manila-based lender said. Political uncertainties and conflicts in Thailand and Sri Lanka may hurt expansion, the ADB said.
Thai Bonds Fall
Thai government bonds fell on concerns the central bank's efforts to weaken the baht may prompt overseas investors to reduce their holdings.
``We are afraid foreign investors may close their positions if measures cause the baht the fall sharply,'' said Pannarat Bhanpato, who helps manage the equivalent of $2 billion in fixed-income assets at MFC Asset Management in Bangkok. Investors are also concerned about the supply of new bonds, she said.
Bank of Thailand will sell 20 billion baht of two-year notes today and 10 billion baht worth of two-, 10- and 12-year bonds tomorrow.
The yield on the 5.4 percent bond due July 2016 rose 4 basis points, or 0.04 percentage point, to 4.21 percent as of 11:15 a.m. in Bangkok, according to prices from Deutsche Bank. The price fell 0.28173 to 109.1511. Bond yields move inversely to prices.