Malaysia’s three-year government bonds headed for the worst week since July as increasing signs of a recovery in the U.S. economy added to speculation the Federal Reserve will pare its stimulus as soon as this month.
American manufacturing and payrolls data beat economists’ estimates in November, while jobless claims fell last week to a two-month low, reports this week showed. Malaysia’s planned power price increase may prompt the central bank to raise its policy rate by 50 basis points in the second half of 2014 as inflationary pressures build, according to a Dec. 2 report from Nomura Holdings Inc. The ringgit was little changed this week.
“With the strong U.S. data, taper expectations are hardening,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “While one could argue that the pickup in inflation could ease after a year, the power inflation pass-through could be a tad sticky.”
The yield on the 3.172 percent notes due July 2016 climbed 11 basis points, or 0.11 percentage point, from Nov. 29 to an eight-week high of 3.28 percent as of 10:06 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The rate on 10-year debt, the most sensitive to the outlook for consumer price increases, rose four basis points to 4.13 percent, the highest since July.
Tenaga Nasional Bhd., the state-owned power distributor, will raise electricity prices by an average of 15 percent in Peninsular Malaysia from Jan. 1, Maximus Johnity Ongkili, minister of energy, green technology and water, said Dec. 2. The plan comes on top of a hike in fuel costs in September.
Higher electricity rates may cause a temporary rise in inflation, central bank Governor Zeti Akhtar Aziz said Dec. 3, citing a preliminary assessment from the monetary authority.
“While the electricity price changes add to supply-side pressures that the central bank need not necessarily respond to, we see a risk that second-round effects are larger than expected given other pressures from earlier subsidy cuts,” Euben Paracuelles, Nomura’s Singapore-based economist, wrote in the report.
The ringgit was little changed for the week and strengthened 0.2 percent today to 3.2222 per dollar in Kuala Lumpur. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose four basis points today to 8.19 percent.
The currency is also finding support before a government report today that may show a continued recovery in the trade balance, said Jonathan Cavenagh, a Singapore-based foreign-exchange strategist at Westpac Banking Corp.
The trade surplus widened to 9.2 billion ringgit ($2.9 billion) in October from 8.7 billion ringgit the previous month, the biggest gap in a year, according to the median forecast of economists surveyed by Bloomberg.
A U.S. Labor Department report today may show the unemployment rate dropped to 7.2 percent last month, matching the lowest level since November 2008, another Bloomberg survey shows. Companies added 185,000 workers to payrolls, less than the 204,000 in October, according to a separate survey. The Fed next meets on Dec. 18.
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