Ringgit completes best quarterly advance since 2012 on rate bets

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(June 30): Malaysia’s ringgit completed its biggest quarterly gain since September 2012 on speculation policy makers will raise borrowing costs next month.

The central bank signaled on May 8 that it may increase the 3 percent benchmark interest rate for the first time in three years. The one-year swap rate climbed 19 basis points this quarter to 3.68 percent, the highest level since 2008, data compiled by Bloomberg show.

“Expectations of an interest-rate hike are the main driver for the ringgit’s strength,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “There have been some portfolio inflows as a result of that expectation.”

The ringgit strengthened 1.7 percent during the three months and 0.1 percent today to 3.2110 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. It reached 3.1937 on June 9, the highest since Nov. 21.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 182 basis points to 4.82 from March 31. It rose 12 basis points, or 0.12 percentage point, today.

Global funds boosted ownership of Malaysian government and corporate debt by 0.5 percent to 235.9 billion ringgit ($73.5 billion) in April, the largest holdings since May 2013, according to the latest central bank data. Figures for last month are due later today.

Bonds Advance

The degree of monetary policy accommodation to avoid a broader build-up in financial and economic imbalances may have to be adjusted, a May 8 statement from Bank Negara Malaysia said. It kept interest rates unchanged for an 18th straight meeting that month and the next review is July 10.

Ten-year government bonds advanced this quarter. The yield on the 4.181 percent notes maturing in July 2024 declined eight basis points to 4.04 percent, according to data compiled by Bloomberg. It fell one basis point today and was little changed for the month.

The Bloomberg Malaysia Local Sovereign Index of debt has returned 1.2 percent in the three months, adding to the first quarter’s 1.3 percent gain.