Ringgit Posts Biggest Weekly Loss Since January on Fed Outlook

The ringgit completed its biggest weekly decline in two months as Federal Reserve officials raised their 2015 forecast for the U.S. benchmark interest rate, spurring a rally in the dollar.

The Fed, while indicating this week that the target rate will stay at zero to 0.25 percent in 2014, said it may reach 1 percent by the end of 2015, higher than a previous prediction of 0.75 percent. Bank Negara Malaysia trimmed the lower end of its estimate for 2014 economic growth this week, saying inflation will hurt household spending amid an uneven global recovery. Data issued after the market closed today showed price gains accelerated in February.

“The market’s factoring in better-than-expected U.S. growth and an earlier-than-expected Fed hike, so it’s probably a dollar strength story,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The recent rejig of the Malaysian growth forecast may have contributed slightly” to the currency’s drop, he said.

The ringgit retreated 0.9 percent this week, the steepest loss since the period ended Jan. 24, to 3.3085 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. It reached 3.3124 today, the weakest since Feb. 14, and was down 0.3 percent for the day.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell nine basis points, or 0.09 percentage point, from March 14 to 6.82 percent.

Inflation Data

The Bloomberg Dollar Spot Index, which tracks 10 of the world’s leading currencies, rose 0.7 percent this week, the biggest five-day gain since Jan. 17. It halted a three-week loss. The Federal Open Market Committee cut its monthly bond-purchase program by a further $10 billion to $55 billion.

Malaysia’s gross domestic product may increase 4.5 percent to 5.5 percent in 2014, after climbing 4.7 percent last year, according to the central bank’s annual report issued March 19. That’s wider than the Finance Ministry’s previous range of 5 percent to 5.5 percent. Inflation may come in between 3 percent to 4 percent, compared with 2.1 percent in 2013, it said.

Consumer prices advanced 3.5 percent in February from a year earlier, the fastest since June 2011 and exceeding the 3.4 median forecast of economists in a Bloomberg survey, a government report showed today.

Government bonds fell, with the yield on the 4.181 percent notes due July 2024 advancing one basis point this week and today to 4.12 percent, data compiled by Bloomberg show.

Overseas investors held 29 percent of the nation’s debt, excluding bills, in January, compared with 17 percent in Thailand, central bank data showed, which may render the ringgit more vulnerable to an outflow of funds spurred by the Fed’s tapering.

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