Ringgit Falls to Lowest Since 2010 on Emerging-Market Aversion

Malaysia’s ringgit dropped to the weakest level since May 2010 as concern that China’s economic growth is slowing and prospects of further cuts in U.S. stimulus damped demand for emerging-market assets.

The yield on Malaysia’s five-year sovereign debt climbed for a fifth day and the benchmark stock index fell the most in five months, as a devaluation in Argentina’s peso deepened risk aversion. While inflation picked up in December to the fastest pace in two years, the central bank will probably keep its benchmark interest rate at 3 percent on Jan. 29, according to all 16 economists surveyed by Bloomberg.

“Sentiment is bad,” said Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank Ltd. in Singapore. “People are still worried about Argentina, the Federal Reserve’s tapering, and China’s shadow banking is unravelling.”

The ringgit depreciated 0.3 percent to 3.3425 per dollar as of 10:28 a.m. in Kuala Lumpur, data compiled by Bloomberg show. It earlier touched 3.3485, the lowest level since May 26, 2010. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 37 basis points to 8.06 percent, the highest in a month.

The FTSE Bursa Malaysia KLCI gauge of equities declined 1.2 percent, the biggest loss since August and poised for its lowest close in three months.

Bonds Slump

Fed policy makers meet Jan. 28-29 when they may give an indication of plans for a further reduction in bond purchases after they began paring the program this month by $10 billion to $75 billion.

While Malaysia’s central bank will probably keep borrowing costs unchanged this week, it could begin to move toward a tighter monetary stance and highlight inflation concerns more strongly, Barclays Plc analysts led by London-based Christian Keller wrote in a Jan. 23 research note.

Consumer prices increased 3.2 percent in December from a year earlier, the fastest pace since November 2011, after the government raised fuel and sugar prices last year.

The yield on Malaysia’s 3.26 percent sovereign bonds due March 2018 advanced five basis points, or 0.05 percentage point, to 3.77 percent, the highest level since the notes were sold in March last year, according to data compiled by Bloomberg. Ten-year rates on the new benchmark securities issued this month climbed five basis points to 4.29 percent.

The cost of insuring the nation’s government bonds for five years using credit-default swaps reached 127 on Jan. 24, the highest level since early October and up from 109 at the end of last year, CMA prices show.

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.