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Ringgit rallies to 3-month high on oil rebound

Malaysia trimmed its growth expectations for 2016 after a decline in oil prices crimped the outlook for exports and government revenue. Prime Minister Najib Razak is counting on consumers to hold up the economy, finding ways to put more money in their pockets.

[KUALA LUMPUR] Malaysia's ringgit rallied the most in three months as a rebound in Brent crude boosted sentiment following a global selloff in stocks due to slowing growth in China.

Brent crude has rebounded almost 7 per cent in two days from its lowest level since 2003, improving the outlook for Asia's only major oil exporter.

The ringgit appreciated 1.5 per cent to 4.3175 per US dollar as of 1:49 pm in Kuala Lumpur, the biggest gain since Oct 23, data compiled by Bloomberg show. That trimmed the currency's decline in 2016 to 0.6 per cent after it fell 19 per cent last year.

The ringgit also strengthened sharply against the Singapore currency on Friday, with one Singdollar fetching 3.0170 ringgit (S$1.00) as at 2:30 pm, down 0.9 per cent from from its close on Thursday 3.0444. To date this year, the Singdollar has reached a high against the ringgit of 3.0829.

Malaysia's 10-year government bond yield dropped to the lowest since May and the cost to insure sovereign notes from default posted the steepest slide in more than a month. Bank Negara Malaysia cut the amount of cash banks must set aside as reserves for the first time since 2009 late on Thursday and opted to keep the benchmark overnight policy rate unchanged to save undermining the ringgit.

Slowing Chinese growth and falling oil prices have deterred risk-taking this year, with the European Central Bank and the Bank of Japan indicating they may add to monetary stimulus due to the market turmoil."Higher oil prices and general risk-on after the ECB president sweet talked the markets with convincing rhetoric on additional stimulus boosted sentiment," said Vishnu Varathan, a Singapore-based economist at Mizuho Bank. "Bank Negara's liquidity infusion is ringgit-positive as it could allay concerns about an excessive selloff in domestic and global markets." The ringgit is stabilizing after the worst drop since the Asian financial crisis last year, with all eyes on Prime Minister Najib Razak's budget revisions next week as the oil-exporting nation gets hit by sliding commodities.

Foreign investors sold a net US$7 billion of Malaysian equities and bonds in 2015, and were net sellers of shares in the first two weeks of this year, according to central bank figures. Bank Negara said Thursday it had pumped RM40 billion into the banking system via monetary operations including the reverse-repurchase facility since early 2015 as "net external outflows reduced the amount of liquidity in the system." The statutory reserve requirement cut will add RM6.2 billion to the system, according to estimates from Credit Suisse Group. There's a risk that if the market interest rate structure is too low, it could result in further capital outflows, which could be negative for the ringgit, Singapore-based analyst Michael Wan wrote in a report released on Friday."The cut in the statutory reserve requirement played a part in the falling swaps, which basically reflects the shift in sentiment toward a bias for some easing," Mizuho's Mr Varathan said.