Ringgit Declines This Week as Oil Slide Spurs Deficit Revision

Malaysia’s ringgit fell this week and touched the lowest level since 2009 after the government raised its fiscal deficit target due to a plunge in oil.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, climbed to a record Friday ahead of the Federal Reserve’s policy meeting next week. Prime Minister Najib Razak raised the 2015 budget shortfall target on Jan. 20 to 3.2 percent of gross domestic product from 3 percent and trimmed the economic growth projection to 4.5 percent to 5.5 percent from as much as 6 percent.

“Expectations of a bigger fiscal deficit resulting from falling oil prices is weighing on the ringgit,” said Wong Chee Seng, a foreign-exchange strategist at AmBank Group in Kuala Lumpur. “The stronger dollar also doesn’t help.”

The ringgit weakened 1.2 percent from Jan. 16 and was little changed today at 3.6005 a dollar in Kuala Lumpur, data compiled by Bloomberg show. The currency declined to 3.6277 on Jan. 21, the weakest level since April 2009.

The currency rose as much as 0.6 percent earlier after the European Central Bank announced Thursday it plans to purchase 60 billion euros ($68.2 billion) of bonds a month as part of its 1.1 trillion euros stimulus, which may feed inflows to higher-yielding emerging-market assets.

Reserves Drop

Malaysia’s foreign-exchange reserves dropped 4 percent to $111.2 billion as of Jan. 15 from the end of December, official data showed Thursday. That’s the lowest level since March 2011. The ringgit has lost almost 12 percent in value in the past six months, second only to the yen among Asia’s most-traded currencies.

Brent crude climbed 1.4 percent today and fell 1.9 percent for the week, the smallest five-day drop since Dec. 19.

The decline in reserves is “quite significant” and suggests that “there may be some central bank action to quell excessive ringgit weakness,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. The stabilization in oil prices means less need for intervention, he added.

The yield on Malaysia’s 10-year sovereign bonds rose two basis points, or 0.02 percentage point, to 3.94 percent this week, data compiled by Bloomberg show. That compares with 1.81 percent on similar-maturity U.S. debt, 0.54 percent on France’s notes and 0.38 percent on German bunds.

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