Ringgit Falls Most in Two Weeks Before Interest-Rate Decision

Malaysia’s ringgit declined the most in two weeks and government bonds rose before today’s central bank interest-rate decision.

Fifteen of 21 economists surveyed by Bloomberg predict Bank Negara Malaysia will increase the benchmark policy rate by 25 basis points to 3.25 percent, while the rest see no change. The ringgit has gained 1.1 percent in July after the central bank said following its last review on May 8 that the “the degree of monetary accommodation may need to be adjusted.”

“In order for the ringgit to sustain the rally in the coming weeks, the statement needs to be quite hawkish,” said Trang Thuy Le, Singapore-based currency strategist at Credit Suisse Group AG. “It seems uncertain for the moment.”

The ringgit retreated 0.2 percent, the most since June 25, to 3.1772 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. It earlier advanced 0.2 percent to 3.1662, near an eight-month high of 3.1653 reached yesterday. The ringgit’s gains this month trail only Indonesia’s rupiah and Colombia’s peso among 24 emerging-market currencies tracked by Bloomberg.

‘Bit Surprised’

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped two basis points, or 0.02 percentage point, to 5.03 percent.

One-year interest-rate swaps were at 3.68 percent, the highest level since September 2008. The central bank’s rate decision will be announced at 6 p.m. local time.

BNP Paribas SA expects Bank Negara to keep interest rates unchanged at today’s meeting although the consensus view in the market is for an increase, said Mirza Baig, BNP’s Singapore-based head of Asia currency and rates strategy.

“I’m a bit surprised by the strength of the ringgit,” he said. “Our sense is that a rate hike is not necessarily going to slow down household leverage growth and macro-prudential measures would probably be the more appropriate tool.”

Malaysia’s factory output increased 6 percent in May from a year earlier, exceeding the median estimate of economists for a 4.2 percent gain and a revised 4.9 percent advance the previous month, a government report showed today.

The yield on Malaysia’s 3.394 percent sovereign bonds due March 2017 dropped two basis points to 3.53 percent, data compiled by Bloomberg show. The five-year yield held at 3.70 percent.

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