- CPI rises 3.5% from year earlier, less than 3.7% forecast
- Bonds decline as inflation erodes returns for investors
Malaysia’s ringgit fell as much as 1.2 percent to a four-week low as its oil-related losses were exacerbated by the fastest inflation in almost two years, which drove bonds lower.
The currency led a drop in Asia as the commodity resumed declines, dimming the outlook for Malaysia’s finances as a net oil exporter. General risk-off sentiment didn’t help as regional equities joined a global selloff. The government reported Wednesday that consumer prices gained 3.5 percent from a year earlier in January, the most since March 2014 but less than the 3.7 percent forecast in a Bloomberg survey.
“While inflation was below estimate and shouldn’t trigger further selling in the ringgit, there’s still concern consumer prices will creep up further in subsequent months,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Accelerating inflation, combined with lower oil prices, pose downside risks to economic growth.”
The currency weakened 0.6 percent to 4.2215 a dollar in Kuala Lumpur and touched 4.2467, the lowest since Jan. 28, according to prices from local banks compiled by Bloomberg. Brent crude added to Tuesday’s 4.1 percent drop, causing the ringgit to give up its 0.3 percent gain in the past two days. The FTSE Bursa Malaysia KLCI Index of shares fell 0.8 percent.
The Southeast Asian nation derives 22 percent of its revenue from oil-related sources and the government has said it risks losing 300 million ringgit ($71 million) for every $1 drop in the commodity. Brent crude fell another 1.8 percent late in Asia on Wednesday.
Government bonds trimmed declines after the data on inflation, which erodes returns. The 10-year yield rose two basis points to 3.95 percent, while notes due in 2023 pay 3.78 percent, prices from Bursa Malaysia show.
The central bank has kept its benchmark overnight policy rate at 3.25 percent since July 2014 and the government projects gross domestic product growth will slow to 4 percent to 4.5 percent this year, from 5 percent in 2015.