Ringgit Strengthens as Government Pledges to Cut Budget Deficit

Malaysia’s ringgit rose toward a four-month high as Prime Minister Najib Razak pledged to reduce the budget deficit next year.

The government forecasts the shortfall will narrow to 4 percent of gross domestic product in 2013 from 4.5 percent, with spending expected at 249.7 billion ringgit ($81.6 billion), according to the Ministry of Finance’s 2012/2013 economic report released today. Spain announced yesterday a 13 billion euro ($16.8 billion) austerity package to tackle the euro area’s third-biggest budget deficit.

“Any attempt to streamline the Malaysian budget will be seen to be positive for the ringgit and government bonds,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “People are hoping Spain’s budget rationalization for 2013 is a warm-up toward the European Central Bank buying Spanish bonds and will lead to Spain asking for a bailout.”

The ringgit climbed 0.5 percent to 3.0570 per dollar as of 5:10 p.m. in Kuala Lumpur, the biggest gain in a week, according to data compiled by Bloomberg. It touched 3.0565 earlier, near the 3.0333 reached Sept. 14 that was the strongest since May 4.

The currency declined 0.2 percent this week, paring its monthly advance to 2 percent and its quarterly gain to 3.7 percent. One-month implied volatility, a measure of exchange-rate swings used to price options, dropped 20 basis points, or 0.20 percentage point, to 7.10 percent.

Gross domestic product may expand 4.5 percent to 5.5 percent next year after rising as much as 5 percent in 2012, the ministry said in its report.

The yield on the 3.314 percent notes due October 2017 rose two basis points, or 0.02 percentage point, to 3.32 percent, according to Bursa Malaysia. The yield climbed two basis points for the week.

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