Ringgit Retreats as China Easing Deepens Growth Outlook Concern

  • Malaysia faces challenge from lower oil price: Morgan Stanley
  • Prime minister aims to further cut fiscal deficit next year

The ringgit fell as China’s interest-rate cut heightened concern that growth in Asia’s biggest economy and a top Malaysian export market is slowing.

The People’s Bank of China also reduced the amount of cash banks must set aside as reserves on Friday to revive an economy set for the slowest annual expansion in a quarter of a century. Malaysia’s 2016 budget last week included tax increases for high-income earners and a pledge to further lower the fiscal deficit. The macro economic outlook hasn’t changed though amid lower energy prices and weak domestic demand, according to a Morgan Stanley report on Monday.

“The market is concerned that China is cutting rates because of problems with growth,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The market is reacting on the back of the slowdown in the Chinese economy.”

The ringgit dropped as much as 1.5 percent before closing 0.2 percent weaker at 4.2283 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The currency rallied 1.6 percent on Friday after Prime Minister Najib Razak announced the budget. It’s up 3.9 percent in October following a five-month run of losses.

Malaysia’s economy will expand 4 percent to 5 percent next year, from 4.5 percent to 5.5 percent in 2015, according to the Ministry of Finance’s 2015/2016 economic report released Friday. Overseas investors were net buyers of the nation’s stocks for a third week, purchasing 230.4 million ringgit ($54 million) and reducing outflows this year to 16.9 billion ringgit, according to a report from MIDF Amanah Investment Bank on Monday.

Five-year government bonds fell, pushing the yield up three basis points to 3.71 percent, prices from Bursa Malaysia show.

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