Ringgit strengthens to 4-week high

Published: 2009/05/01

THE ringgit posted its biggest monthly gain of the year as the central bank said economic stimulus spending will help revive growth in the second half and left interest rates unchanged. Bonds declined.

The currency reached a four-week high as a global stocks rally helped revive investors' risk appetite, bolstering demand for emerging-market assets. Japan reported its first increase in industrial output in six months and the Federal Reserve said a recession is easing in the world's biggest economy.

"There are reasons to be positive as the fiscal stimulus should start to produce results," said Yeo Chin Tiong, head of treasury at OSK Investment Bank Bhd. in Kuala Lumpur. "The risk-taking culture should return and that's positive for the ringgit as well as the regional currencies."

The ringgit gained 0.7 per cent to 3.5615 per US dollar as of 5.14pm in Kuala Lumpur, according to data compiled by Bloomberg. It climbed 2.4 per cent this month and earlier yesterday reached 3.5525, the strongest since April 6.

Three interest-rate cuts and RM67 billion of planned stimulus measures since October may be enough to trigger an economic rebound after a "marked" contraction in the first quarter, Bank Negara Malaysia said in a statement. Southeast Asia's third-largest economy is likely to improve in the second half as global economic conditions stabilise, it added.

The Kuala Lumpur Composite Index rose 2.4 per cent, the most in three weeks.

Bank Negara yesterday kept its overnight rate at a record-low 2 per cent, prompting banks including Standard Chartered Plc to predict an end to the rate-cut cycle this year.

Non-deliverable forwards signal traders are betting the ringgit will weaken to 3.5670 in three months, compared with expectations for a rate of 3.6325 a week ago. Forwards are contracts in which assets are bought and sold at current prices for delivery at a future specified date.

Three-year government notes posted a weekly loss, snapping a three-week rally, on speculation an end to the recent run of interest-rate cuts will sap demand for fixed-income securities.

The yield on the 2.509 per cent note due in August 2012 rose 11 basis points to an almost two-week high of 2.81 per cent, according to the Bursa Malaysia. The price dropped 0.34, or RM3.4 per RM1,000 face amount, to 99.05. A basis point is 0.01 percentage point. - Bloomberg