Ringgit Declines Most in Three Weeks After Rally; Bonds Steady

Malaysia’s ringgit fell the most in three weeks on speculation investors took advantage of the currency’s rally to buy the greenback before the government presents its budget this week. Sovereign bonds were steady.

The ringgit has climbed 2.3 percent this month, the best performance among Asia’s 11 most-traded currencies, according to data compiled by Bloomberg. The budget, which Prime Minister Najib Razak will present in parliament on Oct. 25, may include measures such as a consumption tax to bolster the nation’s finances, United Overseas Bank Ltd. Singapore-based economist Ho Woei Chen wrote in an Oct. 14 report.

“Ahead of the budget on Friday, people are just taking profit,” said Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank Ltd. in Singapore. “There’s a lot of pressure on the government to show a real intention to reform the fiscal account.”

The ringgit retreated 0.7 percent, the most since Sept. 30, to 3.1905 per dollar as of 8:45 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.1413 per dollar on Oct. 18, the strongest level since June. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell one basis point to 8.61 percent.

Malaysia, which has a long-term foreign-currency denominated debt rating of A- at Fitch Ratings, has run annual budget shortfalls every year starting 1998. The current-account surplus shrank 70 percent to 2.6 billion ringgit ($816 million) in the second quarter, the closest the nation has come to a deficit in data compiled by Bloomberg going back to 1999.

Credit Downgrade

Fitch cut Malaysia’s credit outlook to negative in July, citing rising debt levels and a lack of budgetary reform. A downgrade in the nation’s rating is “more likely than not” over 24 months, Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch, said July 31.

The budget creates another opportunity to enter short dollar-ringgit positions, according to a Morgan Stanley research note dated yesterday.

Sovereign bonds were little changed. The yield on the 3.26 percent notes due March 2018 held at 3.38 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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