Malaysia's Ringgit Gains on Speculation Central Bank Is Buying

By David Yong

July 29 (Bloomberg) -- Malaysia's ringgit advanced on speculation the central bank bought the currency to contain inflation as it keeps interest rates on hold to spur growth.

The currency fell by the most in more than five weeks yesterday after Bank Negara Malaysia unexpectedly kept its overnight policy rate unchanged at 3.5 percent for an 18th straight meeting, placing more emphasis on a slowing economy. Consumer prices surged last month by the most in 26 years.


``Given the rate decision, the market believes there's now greater impetus to support the currency,'' said Awaluddin Shariff, a foreign-exchange trader at EON Bank Bhd. ``They wouldn't want to see the ringgit weakening too fast.''

The currency traded at 3.2552 per dollar as of 9:02 a.m. in Kuala Lumpur, versus 3.2655 yesterday, according to data compiled by Bloomberg.

Malaysia's central bank has kept its overnight rate unchanged since April 2006, holding off from raising rates even as a June 5 fuel-price increase stoked inflation to 7.7 percent, the fastest since January 1982.

Bank Negara will likely step up its intervention in the coming sessions because keeping the ringgit supported ``is now a priority'' to help ease inflation, Ideaglobal in Singapore said in a report to clients today.

Central banks intervene in currency markets by arranging sales or purchase of foreign exchange.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.