Aug. 21--The baht yesterday fell yesterday to its weakest level in nine months at 34.12/15 to a dollar as it suffered from investors' lack of confidence in monetary policy and political stability, analysts said.

The baht has weakened since the beginning of 2008, with the strongest level so far this year at 31.27 to a dollar in mid-March. Its decline is in part due to capital outflows as foreign investors sell Thai stocks, causing the Stock Exchange of Thailand index to fall more than 19 percent in the past three months.

Simon Flint, the Singapore-based head of Asian foreign exchange for Lehman Brothers, said the depreciation reflected a perception that the Bank of Thailand's benchmark short-term interest rate was too low to curb inflation.

The baht's persistent slide has surprised markets, which had expected the currency to appreciate after the Election Commission postponed a decision on whether to dissolve the governing People Power Party to Sept 2.

"The baht reflects the fact that investors are a bit uncomfortable with some economic policies, particularly ones about the central bank and the governor," Mr Flint said. "Thai interest rates in real terms [after inflation] are very low. They are among the lowest in the region, compared with the headline inflation. South Korea, Taiwan and India have tended to be more aggressive [in tightening policy]."

The central bank's Monetary Policy Committee increased the one-day repurchase interest rate the first time in 13 months by a quarter percentage point to 3.5 percent in mid-July. Headline inflation accelerated to 9.2 percent in July from 8.9 percent year-on-year in June.

Core inflation, which excludes food and energy, rose to 3.7 percent in July from 3.6 percent year-on-year in June, exceeding the central banks 3.5 percent target.

Mr Flint said market speculation that central bank governor Tarisa Watanagase was under political pressure to keep interest rates steady, together with comments that monetary policy could actually ease, had added to the pressure on the baht to depreciate. The MPC is scheduled to meet again on Aug 27.

"I think most investors want to see the central bank tackle headline inflation, which is too high, and the core inflation expectations. There was a general perception among investors that Asian central banks are behind the curve in raising interest rates to fend off inflation," Mr Flint said.

The baht has performed surprisingly well, given loose monetary policy and political risk. Year-to-date, the currency is down 13 percent, compared to 9 percent for the Philippine peso and Indonesian rupiah and 12 percent for the South Korean won.

Tim Condon, managing director and head of research for Asia for ING Bank, said waning confidence in political stability had put the baht under selling pressure against the dollar.

"All regional currencies are under pressure. Investors are not as bullish as before. They think regional currencies will depreciate. The question is by how much. With the political factors, the Thai baht is the most vulnerable," he said.

The market has mixed views on the outcome of the MPC meeting, he added.

"The market's view on the MPC meeting is not well-formed," he said. "It is clear the [Finance Ministry] wants to hold the interest rate. But with inflation at its peak, monetary policy tightening would be good for the baht."

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