Malaysian Ringgit Gains as Stimulus May Spur Growth; Bonds Fall

By David Yong

March 10 (Bloomberg) -- Malaysia’s ringgit rose to the strongest this month on optimism a second public spending program to be announced in parliament today will help prevent the economy from slipping into a recession. Bonds declined.

The currency declined 2.3 percent over the past three months even after Deputy Prime Minister Najib Razak implemented a $1.9 billion package announced in November. The new spending may be as much as 35 billion ringgit ($9.4 billion), Agence France-Presse reported March 8, citing a government official it didn’t identify.

“The stimulus will help the economy and the key is not so much the amount but the implementation,” said Zulkifli Hamzah, head of research at MIDF Amanah Investment Bank Bhd. in Kuala Lumpur. “It may take time to remove the gloom in the economy and the ringgit.”

The ringgit gained 0.4 percent to 3.7015 per dollar as of 12:42 p.m. in Kuala Lumpur, from 3.7175 on March 6, according to data compiled by Bloomberg. Financial markets were closed yesterday for a public holiday.

Government reports over the past month showed the nation’s exports shrank for a fourth month in January and industrial production slumped in December by the most in more than 6 1/2 years. Bank Negara Malaysia has slashed its overnight policy rate to a record low of 2 percent from 3.5 percent in three meetings since November. The Southeast Asian economy may shrink this year amid a slump in global demand, it said on Feb. 24.

Bonds Tumble

Bonds tumbled, pushing benchmark five-year yields to the highest in four months, on speculation the government will sell more debt to fund its extra spending.

The yield on the 5.094 percent note due in April 2014 jumped 15 basis points to 3.75 percent in Kuala Lumpur, according to Bursa Malaysia. The price dropped 0.707, or 7.07 ringgit per 1,000 ringgit face amount, to 106.22. A basis point is 0.01 percentage point.

“The bond and rates markets are bearing the brunt of market speculation about the size of the stimulus, some of which are on the extreme side,” said Suresh Kumar Ramanathan, a strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “This increased the worry about the government’s ability to finance the stimulus package.”

The finance ministry will sell an additional 4.5 billion ringgit of the 2014 notes in an auction on March 12, the single biggest offering since it sold 5 billion ringgit of three-year notes in June 2004.

The sale will take this year’s tally to 20 billion ringgit, the busiest start to a year since at least 1999, according to data published by the central bank. The government sold a record 60 billion ringgit of bonds in 2008.

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