Malaysian Ringgit Drops to 8-Month low on Interest Rate Concern

By David Yong

Aug. 25 (Bloomberg) -- Malaysia's ringgit fell to an eight- month low on speculation the central bank will refrain from raising interest rates today, choosing to support economic growth rather than tackle the fastest inflation in 26 years.

Consumer prices jumped 8.5 percent from a year earlier in July, the government reported after local financial markets closed on Aug. 22. That exceeded the estimates of 21 economists surveyed by Bloomberg News ahead of the announcement.

``The inflation number underlines some chain effects from higher fuel and electricity prices,'' said Ameer Ali Mohamed, head of research at JF Apex Securities Bhd. in Petaling Jaya outside Kuala Lumpur. ``This puts policy makers in a predicament and markets could suffer'' from any policy inaction, he said.

The ringgit slumped 0.5 percent to 3.3570 per dollar as of 8:35 a.m. in Kuala Lumpur, the lowest since Dec. 21, according to data compiled by Bloomberg.

The central bank will keep its overnight policy rate at 3.5 percent today for a 19th straight meeting since April 2006, according to 12 of 20 economists in a Bloomberg survey. Eight predicted an increase to 3.75 percent. The announcement is due at about 6 p.m. in Kuala Lumpur.

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