Ringgit Declines as Report on Greece Default Spurs Risk Aversion

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Malaysia’s ringgit reversed gains to decline for the week on reduced demand for emerging-market assets after a German newspaper reported that the European nation is preparing for a Greek debt default.

The currency slumped this week to the lowest level since a peg to the dollar was scrapped in 2005 as a 44 percent drop in Brent crude prices from a 2014 peak cut revenue for the oil exporter. That’s helped exacerbate the ringgit’s losses as Asian currencies come under pressure from the prospect of higher U.S. interest rates. Central bank Governor Zeti Akhtar Aziz said June 8 that the weakness should be temporary.

The ringgit dropped 1.1 percent for the week and 0.4 percent Friday to 3.7610 a dollar in Kuala Lumpur, according to data compiled by Bloomberg. The currency, which declined for a fourth week in the longest losing stretch this year, fell to 3.7743 on Monday, the lowest since January 2006.

“The ringgit turned lower because of risk aversion on concern over a Greece default,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “The ringgit will probably trade in a 3.72-3.78 range in the near term.”

Former Prime Minister Mahathir Mohamad pegged the ringgit at 3.8 to the dollar in 1998 after the currency plunged 35 percent the previous year amid a devaluation in the Thai baht. The fixed exchange rate was scrapped in July 2005, the same month China abandoned its peg.

A repeg is one way to stabilize the currency, Mahathir was reported as saying in a Star newspaper report on Thursday. The currency is expected to resume trading at levels that reflect the nation’s fundamentals when uncertainty affecting market sentiment subsides, Zeti said.

Bonds Fall

Southeast Asia’s third-largest economy will expand 4.5 percent to 5.5 percent this year, according to the official forecast, slowing from 6 percent in 2014. That’s comparable to the 5.05 percent predicted by analysts for Indonesia and faster than the 3.5 percent for Thailand, the region’s two-biggest economies.

Greek Prime Minister Alexis Tsipras didn’t concede any ground on proposals from the European Union, such as a higher value-added tax, at a two-hour meeting, Bild reported, citing people it said were familiar with the talks. Growing numbers of Chancellor Angela Merkel’s Christian Democratic Union members of parliament object to further financial aid for Greece, it said.

Malaysia’s government bonds fell this week, with the 10-year yield rising five basis points to 4.13 percent, data compiled by Bloomberg show.