Ringgit Posts Biggest Quarterly Gain Since 2012 on Fund Inflows

Malaysia’s ringgit completed its biggest quarterly gain in more than a year on speculation the nation’s relatively higher yields will draw foreign capital.

The currency rose for a second month after the latest official data showed international investors raised holdings of local government debt by 823 million ringgit ($252 million) in January. Malaysia’s 10-year sovereign notes pay 4.13 percent, compared with 2.74 percent on similar-maturity U.S. Treasuries and 1.58 percent on German bunds, data compiled by Bloomberg show. The Federal Reserve indicated this month it will probably increase interest rates by the middle of 2015.

“We’re starting to see the market reassessing asset allocations,” said Khoon Goh, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Rates will stay low in the U.S. for some time still. What we’re starting to see is some shift out of developed-market equities and those monies getting reallocated in emerging markets.”

The ringgit climbed 0.3 percent this quarter and 0.4 percent this month to 3.2645 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. It gained 0.3 percent today and reached 3.2586, the strongest level since March 7.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose seven basis points, or 0.07 percentage point, today to 6.63 percent. It fell 28 basis points in March and 95 basis points since Dec. 31.

Interest Rates

Fed Chair Janet Yellen said March 19 the central bank’s stimulus program could end this fall and benchmark interest rates may rise six months later. Twelve of 17 economists in a Bloomberg survey predict Malaysia will increase its policy rate by at least 25 basis points this year. The Southeast Asian nation’s central bank has kept the benchmark borrowing cost at 3 percent since May 2011.

Malaysia’s inflation rate rose to a 32-month high of 3.5 percent in February. Bank Negara Malaysia will probably tighten policy in September at the earliest, ahead of U.S. interest-rate increases and an upcoming domestic consumption tax, Oversea-Chinese Banking Corp.’s Singapore-based economist Wellian Wiranto wrote in a research note today.

One-year interest rate swaps climbed four basis points in March to 3.49 percent in a fifth monthly increase, the longest rising streak since April 2010. It reached 3.50 percent today, the highest level since July 2011. The fixed payment to receive floating rates advanced 10 basis points this quarter and two basis points today.

The yield on Malaysia’s 3.26 percent sovereign bonds due March 2018 declined six basis points this year to 3.64 percent, data compiled by Bloomberg show. The rate added four basis points in March and was little changed today.

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