Ringgit Slides as Europe Crisis Damps Risk Taking; Bonds Drop

Edited by Ven Ram, Sandy Hendry, San Francisco Chronicle

Sept. 13 (Bloomberg) – Malaysia’s ringgit fell to a two- month low on speculation Europe’s debt-market turmoil will sap the global economic recovery and prompt policy makers to halt monetary policy tightening.

The currency slid 2.9 percent in seven straight days on concern a default by Greece will temper demand for emerging- market assets. The one-year interest-rate swap declined yesterday to the lowest level in 2011 after Bank Negara Malaysia kept its policy rate on hold last week, citing the possible fallout from the slowdown in the world economy. Bonds dropped.

“The Europe situation remains unresolved and people are avoiding risk because of the potential domino effect,” said Nik M. Khairul, a treasury dealer at Asian Finance Bank Bhd. in Kuala Lumpur. “There’s little room for central banks to tighten for the rest of this year given the slowdown signs.”

The ringgit fell 0.6 percent to 3.0555 per dollar as of 4:20 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency has lost 4.2 percent since hitting a 14- year high of 2.9335 on July 27, trimming its advance this year to 0.3 percent.

The one-year onshore swap rate, the fixed cost needed to receive a floating payment, fell to 3.14 percent yesterday after Bank Negara kept its overnight policy rate unchanged at 3 percent on Sept. 8. Swaps have dropped 36 basis points, or 0.36 percentage point, this quarter. The central bank holds its final scheduled meeting of this year on Nov. 11.

Malaysia’s five-year government bonds fell, lifting yields from a 10-month low. The rate on the 4.262 percent notes due September 2016 increased four basis points to 3.25 percent, according to Bursa Malaysia.

The treasury will sell 4 billion ringgit ($1.3 billion) of Shariah-compliant notes maturing in November 2016 tomorrow in the first of two debt sales scheduled for this month.