Ringgit Gains as Stocks Climb to Record After Growth Accelerates

Malaysia’s ringgit reached a five-month high and the benchmark stock index climbed to a record after the nation’s economic growth and current-account surplus beat forecasts.

Gross domestic product rose 6.2 percent in the first quarter from a year earlier, exceeding the 5.7 percent expected by economists in a Bloomberg News survey and marking the fastest pace since the period ended December 2012, official figures showed after markets closed on May 16. The data added to speculation the central bank will raise borrowing costs for the first time since 2011 to temper the quickest inflation in almost three years.

“The upbeat first-quarter GDP print will reinforce the view that Bank Negara will hike rates and this is positive for the ringgit,” said Choong Yin Pheng, senior manager for bond and economic research at Hong Leong Bank Bhd. in Kuala Lumpur. “The current-account surplus is a factor as well.”

The ringgit rallied 0.7 percent, the biggest gain in a month, to 3.2108 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. It reached 3.2078, the highest level since Dec. 11. The FTSE Bursa Malaysia KLCI Index of shares climbed 0.2 percent to 1,887.07, while bonds maturing in three, five and 10 years dropped.

The current-account surplus, the broadest measure of trade, widened to 19.8 billion ringgit ($6.2 billion) in the quarter, above the median estimate of 16.6 billion ringgit, a separate report showed May 16. A May 8 central bank statement issued after a decision to keep interest rates unchanged said “the degree of monetary accommodation may need to be adjusted” to address the buildup in economic and financial imbalances.

Rate Outlook

One-year interest rate swaps advanced two basis points today to 3.63 percent, indicating investors predict policy makers will raise borrowing costs by at least 50 basis points from the current 3 percent.

Growth in the first quarter was “exceptional,” and the expansion in subsequent periods was expected to be about 5 percent to 5.5 percent, central bank Governor Zeti Akhtar Aziz told reporters in Kuala Lumpur on May 16.

Accelerating price pressures and concerns of financial imbalances are likely to prompt the monetary authority to begin tightening policy with a 25 basis point increase in the third quarter, Australia & New Zealand Banking Group Ltd. economists including Singapore-based Glenn Maguire wrote in a May 16 report. The next central bank meeting is due on July 10.

Inflation Figures

A government report on May 21 may show consumer-price gains held at 3.5 percent in April, a Bloomberg survey shows, matching the pace in the previous two months that was the fastest since June 2011.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, dropped 13 basis points, or 0.13 percentage point, to 5.67 percent.

The yield on Malaysia’s 3.394 percent sovereign bonds due March 2017 advanced two basis points to 3.54 percent and the five-year yield climbed four basis points to 3.72 percent, data compiled by Bloomberg show.

Global funds increased holdings of Malaysian equities by 656.8 million ringgit in the five days ended May 16, the third highest weekly increase this year, Zulkifli Hamzah, an analyst at MIDF Amanah Investment Bank Bhd. in Kuala Lumpur, wrote in a report today, citing stock-exchange data.

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