Ringgit rises to three-month high as markets cheer Najib budget

[KUALA LUMPUR] Malaysia's ringgit rose to a three-month high as Brent crude extended a rebound, brightening the outlook for the oil exporter following government steps to shore up the economy.

The currency headed for its biggest weekly gain since October in a shortened holiday week, rallying more than any other in developing nations. Prime Minister Najib Razak maintained the fiscal-deficit target on Thursday even as a slump in oil over the past 18 months prompted a cut to the price assumption for this year. The ringgit may outperform Asia emerging markets in 2016 as Brent starts to stabilise and given the currency's 19 per cent loss last year was perhaps a bit overdone, according to Skandinaviska Enskilda Banken AB.

The ringgit strengthened 1 per cent to 4.1655 a dollar as of 9.10am in Kuala Lumpur and is up 3.2 per cent from Jan 22, prices from local banks compiled by Bloomberg show. It reached 4.1600, the highest level since October, when it last posted a weekly gain of more than 3 per cent. The currency advanced against all 10 major exchange rates in Asia this week, and climbed the most versus the Indian rupee and South Korean won.

"Oil prices are higher and that's definitely helping the ringgit and the budget was seen as pretty positive," said Sean Yokota, Singapore-based head of Asia strategy at SEB. While many Asian countries are looking to fiscal stimulus, the "fact Najib has kept it pretty stable means that he's still for economic reforms," he said.

Mr Najib's 2016 budget revisions included cutting employee state pension contributions and giving tax exemptions for certain groups of workers. The government's oil assumption price was revised to US$30 to US$35 a barrel from US$48. Brent has rallied more than 16 per cent in two weeks to more than US$33, after falling to its lowest level since 2003.

In other local markets, Malaysia's benchmark stock index halted a three-week loss and 10-year government bonds climbed for a third week, pushing the yield to an eight-month low. The cost to protect the nation's debt from default for five years fell to the least since Jan 1.

BLOOMBERG