BANGKOK • The Thai baht dropped by the most in more than 14 years last month after the government cut forecasts for growth and exports, spurring outflows from Thai equities as the US prepared to raise interest rates.

The currency fell 4.2 per cent to 35.245 a US dollar as of 4.15pm yesterday in Bangkok, the sharpest monthly loss since March 2001, Bloomberg-compiled data shows.

The economy is slowing after Prime Minister Prayut Chan-o-cha, who seized power in a military coup in May last year, failed to spur a revival and planned investment in infrastructure fell short of target.

While overseas investors sold a net US$856 million (S$1.1 billion) of stocks last month, the most since May last year, an index of sovereign bonds rose, suggesting demand for the relative safety of debt.

"The baht has fallen in line with a strong dollar," said Mr Tsutomu Soma, department manager of the fixed-income business unit at Rakuten Securities in Tokyo. "Thai political uncertainties are also weighing on investor confidence."

Thailand's government is under increasing pressure to overhaul the Cabinet and bolster the economy as waning consumer confidence and a slump in manufacturing portend one of the region's slowest expansions, according to analysts.

The economy may grow 3 per cent this year, the Finance Ministry said on Tuesday, down from an April estimate of 3.7 per cent.

Exports contracted for five straight months through May and figures for June from the Bank of Thailand were due yesterday.

A Bloomberg index of Thai sovereign bonds gained 0.9 per cent last month, halting a two-month drop. The three-year yield declined 17 basis points from June 30 to 1.6 per cent and the 10-year yield fell 12 basis points to 2.84 per cent.

BLOOMBERG