Ringgit in Biggest Two-Day Drop Since 2008: Kuala Lumpur Mover

Malaysia’s ringgit was headed for its biggest two-day decline since May 2008 and government bonds dropped on speculation the Federal Reserve will reduce monetary stimulus, slowing inflows to emerging-market assets.

The currency reached its weakest level in almost a year as DBS Bank Ltd. lowered the Southeast Asian nation’s 2013 economic growth forecast to 5 percent from 5.5 percent, after factory output and export data from China, Malaysia’s second-biggest overseas market, trailed estimates. A U.S. jobs report on June 7 topped economists’ predictions, bolstering the case for the Fed to trim its $85 billion monthly debt purchases.

“There is continuous speculation on the time and pace of tapering of quantitative easing,” said Choong Yin Pheng, a senior manager for fixed income and economic research at Hong Leong Bank Bhd. in Kuala Lumpur. “That has pared demand for risk assets and affected the ringgit.”

The currency declined 1 percent to 3.1592 per dollar as of 4:02 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.1615, the weakest level since July 27, after falling 1.1 percent yesterday.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 59 basis points, or 0.59 percentage point, to 9.54 percent. The gauge touched 9.61 percent, the highest since Jan. 30, 2012.

Bond Outflows

A “modest adjustment downward” in bond buying is possible as “early as this summer,” San Francisco Fed President John Williams said last week. Chairman Ben S. Bernanke has signaled stimulus measures could be trimmed if there’s a “sustainable improvement” in the jobs market.

Malaysia’s factory output rebounded in April, a government report showed today. Industrial production gained 4.7 percent from a year earlier, beating the 1.6 percent increase forecast by economists in a Bloomberg survey and following a 0.1 percent contraction in March.

The yield on the 3.26 percent government bonds due March 2018 advanced two basis points to 3.22 percent after climbing three basis points yesterday, according to data compiled by Bloomberg.

Investors pulled a record $12.5 billion from bond funds in the week ended June 5, Citigroup Inc. reported June 7, citing data from U.S. research firm EPFR Global.

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