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Ringgit climbs a second day on ECB stimulus, rally in oil price

Friday, January 23, 2015 - 11:28
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Malaysia's ringgit rose for a second day on speculation the European central bank's bond-buying programme will feed demand for higher-yielding assets and on signs oil prices are stabilising.

[KUALA LUMPUR] Malaysia's ringgit rose for a second day on speculation the European central bank's bond-buying programme will feed demand for higher-yielding assets and on signs oil prices are stabilising.

The European Central Bank plans to purchase 60 billion euros (US$68.2 billion) of bonds a month as part of its 1.1 trillion euros stimulus, the monetary authority announced Thursday. Brent crude rallied 1.8 per cent Friday and prices fluctuated 4.5 per cent this week, compared with 23 per cent in the first two weeks of 2015. Malaysia, Asia's only major oil exporter, has revised its projections for the fiscal deficit and growth amid a slump in energy costs.

"Asian currencies including the ringgit are rising because of the ECB's stimulus," said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. "The ringgit is also benefiting from speculation of oil prices recovering." The ringgit appreciated 0.3 per cent to 3.5915 a dollar as of 10:43 am in Kuala Lumpur, trimming this week's loss to 0.9 per cent, data compiled by Bloomberg show. Brent fell 1.5 per cent from Jan 16, the smallest five-day drop since Dec 19.

The exchange rate declined to 3.6277 on Jan 21, the weakest level since April 2009, and a drop in foreign-exchange reserves suggests the central bank has been intervening to temper the loss in Southeast Asia's worst-performing currency.

Reserves Fall Reserve holdings dropped 4 percent to US$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.

The decline in reserves is "quite significant" and suggests that "there may be some central bank action to quell excessive ringgit weakness," Varathan said. The stabilization in oil prices means less need for intervention, he added.

Prime Minister Najib Razak raised the 2015 budget deficit target on Jan 20 to 3.2 per cent of gross domestic product from 3 per cent and trimmed the economic growth projection to 4.5 per cent to 5.5 per cent from as much as 6 per cent.

The yield on Malaysia's 10-year sovereign bonds rose two basis points, or 0.02 percentage point, to 3.95 per cent this week, data compiled by Bloomberg show. That compares with 1.85 per cent on similar-maturity US debt, 0.62 per cent on France's notes and 0.45 per cent on German bunds.

BLOOMBERG