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Ringgit Heads for Second-Best Month of 2011 on Rate Outlook

July 29 (Bloomberg) -- Malaysia’s ringgit headed for its second biggest monthly gain this year on speculation policy makers will tolerate a stronger currency to damp inflation.

The ringgit traded near its strongest level in almost 14 years after Bank Negara Malaysia Governor Zeti Akhtar Aziz said this week that addressing inflation is “critical” as rising prices would undermine economic growth prospects. The MSCI Asia-Pacific Index of regional shares dropped for a third day as lawmakers in the U.S. struggled to find a solution to raise the nation’s debt ceiling.

“The ringgit is expected to stay firm as the central bank appears to put more emphasis on inflation, suggesting that a rate hike may be on the cards,” said Calbert Loh, head of treasury at Bangkok Bank Bhd. in Kuala Lumpur. “The situation in the U.S. doesn’t seem to have much impact on the local currency.”

The ringgit strengthened 1.7 percent this month to 2.9660 per dollar as of 4:48 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It gained 0.2 percent this week. The currency touched 2.9335 on July 27, the strongest level since September 1997.

Malaysia’s consumer prices rose 3.5 percent in June from a year earlier, the most since March 2009, the government said on July 20.

Bank Negara Malaysia kept its overnight policy rate at 3 percent on July 7. The nation will raise borrowing costs by 25 basis points, or 0.25 percentage point, to 3.25 percent this quarter, according to economists in a Bloomberg survey. The central bank meets next on Sept. 8.

Government bonds gained. The yield on the 4.16 percent notes due July 2021 fell 19 basis points this month to 3.87 percent, according to Bursa Malaysia Bhd.

To contact the reporter on this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net

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

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