Ringgit Falls to Lowest Since 2010 on Emerging-Market Aversion

Malaysia’s ringgit dropped to the weakest level since May 2010 as concern that China’s economic growth is slowing and prospects of further cuts in U.S. stimulus damped demand for emerging-market assets.

The yield on Malaysia’s five-year sovereign debt climbed for a fifth day and the benchmark stock index fell the most in five months, as a devaluation in Argentina’s peso deepened risk aversion. While inflation picked up in December to the fastest pace in two years, the central bank will probably keep its benchmark interest rate at 3 percent on Jan. 29, according to all 17 economists surveyed by Bloomberg.

“Sentiment is bad,” said Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank Ltd. in Singapore. “People are still worried about Argentina, the Federal Reserve’s tapering, and China’s shadow banking is unravelling.”

The ringgit depreciated 0.4 percent to 3.3468 per dollar in Kuala Lumpur, data compiled by Bloomberg show. It touched 3.3485 earlier, the lowest level since May 26, 2010. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 35 basis points, or 0.35 percentage point, to 8.03 percent.

The FTSE Bursa Malaysia KLCI gauge of equities declined 1.3 percent to a three-month low of 1,778.88.

Bonds Slump

Fed policy makers meet Jan. 28-29, when they may give an indication of plans for a further reduction in bond purchases after they began paring the program this month by $10 billion to $75 billion.

While Malaysia’s central bank will probably keep borrowing costs unchanged this week, it could begin to move toward a tighter monetary stance and highlight inflation concerns more strongly, Barclays Plc analysts led by London-based Christian Keller wrote in a Jan. 23 research note.

Consumer prices increased 3.2 percent in December from a year earlier, the fastest pace since November 2011, after the government raised fuel and sugar prices last year.

The yield on Malaysia’s 3.26 percent sovereign bonds due March 2018 advanced four basis points to 3.76 percent, according to data compiled by Bloomberg. Ten-year rates on the new benchmark securities issued this month climbed six basis points to 4.31 percent.

The cost of insuring the nation’s government bonds for five years using credit-default swaps reached 127 on Jan. 24, the highest level since early October and up from 109 at the end of last year, CMA prices show. The contracts fell two basis points to 125 today.

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