Ringgit Passes 3 Per Dollar for First Time Since 1997

(Corrects name of index in eighth paragraph of story published April 25.)

Malaysia’s ringgit advanced above 3 per U.S. dollar for the first time in more than 13 years on speculation its central bank will join Asian countries, including India and South Korea, in raising interest rates to help damp inflation.

Higher rates are boosting fund inflows into the region as economists forecast central banks in Japan and the U.S. will keep their benchmark rates near zero this week. The ringgit led appreciation among Asian currencies today with its biggest jump in two weeks after inflation in Southeast Asia’s third-largest economy accelerated at the fastest pace in 23 months in March.

“We could expect the ringgit to strengthen to counter inflation, given that there’s still a small probability of a rate increase in May,” said Saktiandi Supaat, head of foreign- exchange research in Singapore at Malayan Banking Bhd. “It’s also helped by the dollar weakness.”

The ringgit strengthened 0.4 percent to 2.9915 per dollar as of 6:15 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 2.9910, the strongest level since Oct. 9, 1997. Analysts predicted the currency will rise to 2.90 per dollar in the fourth quarter, a Bloomberg News survey showed.

Bank Negara Malaysia, the country’s central bank, will meet on May 5 to decide whether to resume raising rates. It has kept its overnight rate at 2.75 percent since July, after raising it three times in 2010 in a pre-emptive move.

Yield Premiums

Higher Asian rates have boosted the yield premiums on local assets, attracting foreign funds. While global exports remained sluggish, Malaysia’s economy grew 7.2 percent last year, the most in a decade. Southeast Asia’s third largest economy is forecast by the central bank to expand by as much as 6 percent this year.

The ringgit’s 2.8 percent rally this year added to a 12 percent appreciation in 2010 as foreign investors raised their total holdings of local-currency debt to a record 138 billion ringgit ($46 billion) as at end February.

The Australian dollar rose to a record while the Dollar Index, which tracks the currency against those of six major trading partners, fell 0.2 percent today, the lowest since August 2008, after declining 1 percent last week.

“With good growth momentum and inflationary pressure still elevated, it’s a window of opportunity for policy makers to tighten,” said Rahul Bajoria, an economist in Singapore at Barclays Plc. “We see the ringgit getting stronger over the next three to 12 months, it’s a sustainable gain.”

Consumer Prices

Consumer prices in Malaysia rose 3 percent in March from a year earlier, the most since April 2009, the statistics department said on April 20. Bank Negara has kept its overnight rate at 2.75 percent since July, after raising it three times in 2010.

“Policy makers may be prompted to resume raising interest rates in two weeks’ time after seeing the inflation” trend, Kuala Lumpur-based Hong Leong Bank Bhd. said in a research note to clients today.

The Federal Reserve will keep its target rate for overnight loans between banks between zero and 0.25 percent when it meets on April 27, according to all 80 economists in a Bloomberg News survey. The rate has been unchanged since December 2008.

Benchmark 10-year notes snapped a two-day loss before a government debt sale later this week.

The yield on the 4.16 percent note maturing in July 2021 dropped 4 basis points, or 0.04 percentage point, to 4.07 percent, according to Bursa Malaysia. The price increased 0.3, or 3 ringgit per 1,000 ringgit face amount, to 100.7.

The treasury will sell 3.5 billion ringgit of Shariah- compliant notes maturing in 2021 on April 27, through both auction and private placement, according to its sale calendar.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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