Ringgit leads in emerging market losses; Najib revises fiscal deficit target upwards

[KUALA LUMPUR] Malaysia's ringgit fell the most in emerging markets as Prime Minister Najib Razak revised the fiscal deficit target higher amid a plunge in oil prices and at the same time lowered the 2015 economic growth forecast.

The budget shortfall will come in at 3.2 per cent of gross domestic product this year, instead of the previous 3 per cent estimate, Mr Najib said in a special session in Putrajaya outside the capital Kuala Lumpur on Tuesday. The economy will expand 4.5 per cent to 5.5 per cent in 2015, versus 5 per cent to 6 per cent, he said, adding that the nation isn't in crisis.

"The ringgit is still weak because the market is reacting to the higher fiscal deficit for this year and lower GDP growth forecast," said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. "The ringgit is seeing selling pressure and could weaken further in the near term."

The currency fell as much as 1.2 per cent to 3.6153 a dollar, the lowest level since April 2009. It was at 3.6132 at 2.15pm in Kuala Lumpur, according to data compiled by Bloomberg. The five-year government bond yield climbed one basis point, or 0.01 percentage point, to 3.8 per cent. The FTSE Bursa Malaysia KLCI Index of shares was down 0.2 per cent.

The currency has weakened 12 per cent in six months on concern that a slump in Brent crude will reduce earnings for Asia's only major oil exporter and weigh on the current-account surplus, a key support for the ringgit. The balance must remain in excess, the prime minister said today.

Mr Najib stressed that the government will take specific and proactive measures to support the economy. Without official intervention, the 2015 fiscal deficit would be 3.9 per cent of GDP, he said.

Oil-related industries account for a third of the Southeast Asian nation's state revenue. Mr Najib said Malaysia is actually a "net petroleum importer" as he cut the oil price assumption target to US$55 a barrel. Brent was steady at US$48.84, after falling 2.7 per cent yesterday.

Official data tomorrow may show inflation slowed to 2.8 per cent in December from a year earlier, versus 3 per cent the previous month, according to the median forecast in a Bloomberg survey.

BLOOMBERG