[KUALA LUMPUR] Malaysia's ringgitfell as much as 1.2 per cent to a four-week low as its oil-related losses were exacerbated by the fastest inflation in almost two years, which drove bonds lower.
The currency led a drop in Asia 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 regional equities joined a global selloff. The government reported Wednesday that consumer prices gained 3.5 per cent from a year earlier in January, the most since March 2014 but less than the 3.7 per cent forecast in a Bloomberg survey.
"While inflation was below estimate and shouldn't trigger further selling in the ringgit, there's still concern consumer prices will creep up further in subsequent months," said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "Accelerating inflation, combined with lower oil prices, pose downside risks to economic growth."
The currency weakened 0.6 per cent to 4.2215 a dollar in Kuala Lumpur and touched 4.2467, 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 0.8 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 (US$71 million) for every $1 drop in the commodity. Brent crude fell another 1.8 per cent late in Asia on Wednesday.
Government bonds trimmed declines after the data on inflation, which erodes returns. The 10-year yield rose two basis points to 3.95 per cent, while notes due in 2023 pay 3.78 per cent, prices from Bursa Malaysia show.
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.