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Ringgit Falls as Oil-Price Surge Raises Fiscal Deficit Concern

June 16 (Bloomberg) -- The ringgit posted its biggest two-day drop since April on concern Malaysia’s fiscal deficit will worsen amid a surge in crude oil prices.

The government has reduced fuel subsidies as it aims to cut the deficit to 3.5 percent of gross domestic product this year from 3.9 percent in 2013. Brent oil climbed above $114 a barrel on June 13 for the first time in nine months as battles in Iraq between government forces and Sunni Muslim insurgents intensified.

“The situation in Iraq has oil prices going up and perhaps this is getting investors a bit nervous,” said Khoon Goh, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “There’s still a bit of the subsidy that the Malaysian government dishes out, so on the fiscal situation, that could lead to some deterioration.”

The ringgit fell 0.2 percent to 3.2263 per dollar as of 4:53 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It has weakened 0.6 percent in two days, the biggest loss since April 22. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 12 basis points, or 0.12 percentage point, to 5.30 percent.

The Malaysian currency has fallen 0.4 percent in June, the third-worst performance in Asia after India’s rupee and the Indonesian rupiah, according to data compiled by Bloomberg.

The ringgit will probably trade within a 3.20-3.25 range over the next month, with little room for the currency to appreciate given tensions in the Middle East and Ukraine, Mirza Baig, BNP Paribas SA’s Singapore-based head of Asia currency and rates strategy, said in a phone interview today.

Malaysia will cut subsidies on items including fuel by 15.6 percent to 39.4 billion ringgit ($12.2 billion) in 2014, according to a finance ministry report released Oct. 25.

The yield on Malaysia’s 4.181 percent sovereign bonds due July 2024 was little changed at 4.05 percent, data compiled by Bloomberg show.

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey, Amit Prakash

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