Ringgit Forwards Gain as Central Bank Says Currency Undervalued

Malaysia’s ringgit forwards gained the most in two weeks after the central bank governor reiterated that the currency is “significantly undervalued.”

The ringgit is the region’s worst-performing currency in the past six months due to a combination of a plunge in oil and concern that state investment fund 1Malaysia Development Bhd. will default on its debt. It dropped to a six-year low Wednesday. The country’s banking system won’t collapse in the event of loan defaults by 1MDB, Bank Negara Malaysia Governor Zeti Akhtar Aziz told reporters in Kuala Lumpur Wednesday.

“Bank Negara is saying that alarm over the ringgit and 1MDB is overdone,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “That’s a good deterrent for those who bet against a credible central bank.”

One-month non-deliverable forwards rose 0.7 percent to 3.6985 a dollar as of 5:12 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The ringgit strengthened 0.3 percent to close at 3.6870 after falling to 3.7190 Wednesday, the lowest level since March 2009.

Government bonds halted a three-day decline. The 10-year note yield fell four basis points, or 0.04 percentage point, to 3.96 percent, according to data compiled by Bloomberg.

The Treasury sold 4 billion ringgit ($1.1 billion) of 2025 bonds Thursday to yield 3.955 percent, according to the central bank’s website. Demand for the debt exceeded the amount on offer by 2.2 times, the least since December.

Factory Output

A government report Thursday showed the nation’s factory output expanded 7 percent in January from a year earlier, matching the median estimate in a Bloomberg survey, and slowing from 7.4 percent the previous month.

1MDB’s viability was put in question after it delayed the settlement of a 2 billion ringgit loan by about three months, before repaying it in February. The Kuala Lumpur-based firm, set up by the government five years ago to fund national construction projects, has drawn criticism from lawmakers for its rising debt, which totaled 41.9 billion ringgit in March 2014.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, snapped a six-day gain. The gauge slid 30 basis points to 10.81 percent, data compiled by Bloomberg show.

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