Malaysia’s ringgit fell to a six-year low and government bonds rose on speculation the central bank is moving closer to cutting interest rates.
Bank Negara Malaysia, which has kept its overnight policy rate at 3.25 percent since raising it in July, meets today and all 19 economists surveyed by Bloomberg predict no change. While a reduction in borrowing costs would put further pressure on the ringgit, the nation is grappling with the lowest inflation in five years and a slump in crude prices, depleting earnings for the oil exporter. A second surprise decision by India Wednesday to cut rates and a similar move by China last weekend spurred speculation that Malaysia may follow suit.
“While we are of the view that Malaysia’s interest rate will remain unchanged, there are rising expectations of a cut given the moves in India and China,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The dollar strength is also weighing on Asian currencies.”
The ringgit weakened 0.1 percent to 3.6488 a dollar in Kuala Lumpur, according to data compiled by Bloomberg, and earlier dropped to 3.6628, the lowest since March 2009. It is Asia’s worst-performing exchange rate in the past six months, with a loss of 13 percent.
Bond investors are paring previous bets that the central bank would tighten policy amid 2014’s fastest economic growth in four years. The yield on government debt due in 2017 fell one basis point Thursday to 3.43 percent, down from last year’s peak of 3.88 percent.
Swaps fall
While one-year interest-rate swaps at 3.68 percent still signal the possibility of a rate increase, that’s lower than the 3.82 percent at the end of last year. Annual inflation slowed to 1 percent in January, the least since November 2009.
As oil prices slumped, the government raised its 2015 fiscal-deficit target to 3.2 percent of gross domestic product from 3 percent and reduced its growth forecast.
Morgan Stanley predicts cuts of 25 basis points by Malaysia at both the next two meetings in March and May. “With fiscal consolidation constrained against a backdrop of slowing growth and disinflation, we expect monetary policy to bear some burden of policy adjustment,” analysts Deyi Tan, Zhixiang Su and Ju Ye Lee wrote in a March 2 report.
One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, climbed 74 basis points, or 0.74 percentage point, to 10.68 percent, the highest since Feb. 23. That’s the biggest increase in almost two months.
Bloomberg
Thu Mar 05 2015
Malaysias ringgit fell to a six-year low and government bonds rose on speculation the central bank is moving closer to cutting interest rates.
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