Ringgit Volatility Drops on Bets Global Stimulus to Spur Inflows

A measure of expected swings in ringgit fell to the lowest level since January 2013 on speculation monetary stimulus in leading industrialized nations will spur demand for higher-yielding assets in Malaysia.

The European Central Bank cut interest rates to negative on June 5, the Federal Reserve has held its benchmark rate close to zero since 2008 and the Bank of Japan has maintained a policy of buying about 7 trillion yen ($68.7 billion) of government bonds a month since April 2013. Ten-year Malaysian sovereign debt yields 4.06 percent, compared with 0.60 percent for similar-maturity Japanese notes and 2.59 percent for U.S. Treasuries.

“Falling volatility is a byproduct of the monetary policy in the G-3 countries,” said Tim Condon, head of Asian research in Singapore at ING Groep NV. “Investors will want to get to any instrument that looks attractive from a yield perspective.”

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, fell 16 basis points, or 0.16 percentage point, to 5.13 percent in Kuala Lumpur, according to data compiled by Bloomberg. It reached 5.04 percent earlier, the lowest since January 2013, and has declined for seven weeks.

The ringgit fell 0.3 percent today and 0.2 percent this week to 3.2185 per dollar, according to data compiled by Bloomberg.

Industrial Production

Global funds boosted holdings of Malaysian government and corporate debt by 0.5 percent to 235.9 billion ringgit ($73.3 billion) in April, the highest level since May 2013, according to the latest available central bank data.

Factory output in Southeast Asia’s third-largest economy rose 4.2 percent in April from a year earlier, a 14th straight monthly gain, according to official data released June 11. That followed a June 6 report showing exports and the trade surplus were higher than economists forecast in April.

Citigroup Inc. is bullish on Malaysia’s ringgit as improving external balances and signs of a pickup in China’s economy lend support to the currency, strategists including Singapore-based Siddharth Mathur wrote in a research note yesterday.

The yield on Malaysia’s 4.181 percent sovereign bonds due July 2024 was steady at 4.06 percent, data compiled by Bloomberg show. The rate fell one basis point this week.

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