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Ringgit Falls as U.S. Spending Cuts Seen Weakening Global Growth

March 4 (Bloomberg) -- Malaysia’s ringgit declined to a one-week low as concern that U.S. spending cuts will slow global growth damped demand for riskier assets. Government bonds advanced.

President Barack Obama is negotiating with lawmakers to address $1.2 trillion in expenditure reduction spread over nine years as part of a 2011 deal to increase the debt limit. Italy may hold fresh elections within months should Democratic Party leader Pier Luigi Bersani fail to win support to form a government, Stefano Fassina, economic-policy spokesman for Bersani, said yesterday. Malaysia’s national polls, which must be held by late June, “could lead to some market volatility,” according to a Feb. 28 International Monetary Fund report.

“The thing that’s dragging down the market is the sequester issue,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “If you take all the Italian election uncertainty, the impact from that is creating a bit of risk aversion.”

The ringgit retreated 0.3 percent to 3.1080 per dollar as of 4:29 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.1120, the weakest since Feb. 22. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell five basis points, or 0.05 percentage point, to 6.90 percent.

Malaysia’s steady economic growth will continue this year, led by consumption demand and investment activity, central bank Governor Zeti Akhtar Aziz said in a CCTV interview.

The yield on the 3.492 percent notes due March 2020 fell one basis point to 3.40 percent, according to Bursa Malaysia.

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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