Ringgit Halts Three-Day Loss as ECB Rate Cut May Spur Inflows

Malaysia’s ringgit halted a three-day loss on speculation the European Central Bank will lower its deposit rate to below zero today, potentially spurring inflows to higher-yielding emerging-market assets.

The ECB will cut the rate to minus 0.1 percent, becoming the first major central bank to lower borrowing costs to negative, according to a Bloomberg News survey of economists. Malaysia’s 10-year government bonds yield 4.08 percent, compared with 1.43 percent for similar-maturity German bunds and 2.69 percent for U.K. Gilts.

“The deposit rate is likely to be cut into negative territory,” said Jonathan Cavenagh, a Singapore-based strategist at Westpac Banking Corp. “There could be a fair bit of euro liquidity hitting the system and looking for a new higher yielding home.”

The ringgit strengthened 0.3 percent to 3.2283 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. It lost 0.8 percent in the last three days. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell six basis points, or 0.06 percentage point, to 5.45 percent.

Malaysia may report tomorrow that exports rose 9.6 percent in April from a year earlier, a 10th straight monthly gain, the median estimate of economists in a Bloomberg News survey shows.

Barclays Plc raised its forecast for Malaysia’s 2014 economic growth to 5.7 percent from 5.4 percent due to strong investment, stable private consumption and improving global demand, Singapore-based economist Rahul Bajoria wrote in a note to clients today. Gross domestic product increased 4.7 percent in 2013.

The yield on Malaysia’s 3.654 percent sovereign bonds due October 2019 was little changed at 3.75 percent, data compiled by Bloomberg show.

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