Ringgit falls to four-week low as inflation, oil dim prospects

[KUALA LUMPUR] The ringgit fell to a four-week low as its oil-related losses were exacerbated by forecasts Malaysia's inflation quickened to the fastest in seven years.

The currency led a drop in emerging markets on Wednesday as the commodity resumed declines, dimming the outlook for Malaysia's finances as a net oil exporter.

General risk-off sentiment didn't help as Asian equities joined a global selloff. Consumer-price gains estimated at 3.7 per cent from a year earlier in January would be the highest since 2009 and would almost wipe out the interest paid on the nation's bonds maturing in less than a decade.

"Inflation above market expectations could encourage outflows from the currency and bond markets because real returns would be unattractive," said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd in Singapore.

"CPI data will be closely watched as a high print means Bank Negara Malaysia's hands in delivering easing are tied."

The currency weakened 1.2 per cent to RM4.2443 a US dollar as of 10:41 am in Kuala Lumpur and touched RM4.2467, the lowest since Jan 28, according to prices from local banks compiled by Bloomberg.

Brent crude added to Tuesday's 4.1 per cent drop, causing the ringgit to give up its 0.3 per cent gain in the past two days.

The FTSE Bursa Malaysia KLCI Index of shares fell 0.3 per cent.

Ten-year government bonds declined for a fourth day, with the yield rising one basis point to 3.94 per cent, prices from Bursa Malaysia show. Notes due in 2023 pay 3.78 per cent and those maturing in 2020 3.4 per cent.

The Southeast Asian nation derives 22 per cent of its revenue from oil-related sources and the government has said it risks losing RM300 million (S$100 million) for every US$1 drop in the commodity. The central bank has kept its benchmark overnight policy rate at 3.25 per cent since July 2014 and the government projects gross domestic product growth will slow to 4 per cent to 4.5 per cent this year, from 5 per cent in 2015.

BLOOMBERG