Ringgit falls for third week on Fitch downgrade risk, oil slump

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(Mar 20): Malaysia’s ringgit retreated for a third week as Fitch Ratings said it would probably downgrade the nation and the price of crude oil slid to a six-year low.

Three-year government bonds climbed for a fifth week before a report due Friday that’s forecast to show the inflation rate is the lowest since 2009. Fitch is more likely than not to lower Malaysia’s rating due to a worsening trade surplus and concerns about a state investment company’s ability to pay its debts, Andrew Colquhoun, head of Asia Pacific sovereign ratings, said in a March 18 interview.

“The Fitch comments certainly weighed on the ringgit,” said Christopher Wong, a Singapore-based senior currency analyst at Malayan Banking Bhd. “The ringgit is also vulnerable to falling oil prices.”

The ringgit depreciated 0.9 percent in the past five days to 3.7180 a dollar as of 11:25 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency weakened 0.3 percent Friday and reached a six-year low of 3.7203.

The cost of crude in New York fell for the fifth week in a row and sank to $42.03 a barrel on Wednesday, the lowest since March 2009. The slump in energy prices prompted net oil exporter Malaysia to lower its 2015 economic growth target in January to 4.5 percent to 5.5 percent from an earlier projection of as much as 6 percent.

Rate Cut

Malaysia’s credit ranking sits “more naturally” in the BBB range, and Fitch will review the country in the second quarter, Colquhoun said in the interview. The nation is currently rated A-, the fourth-lowest investment grade, and two levels above BBB.

The yield on Malaysia’s sovereign notes due October 2017 retreated five basis points, or 0.05 percentage point, this week to 3.34 percent, the lowest since June 2013, according to data compiled by Bloomberg. The yield is headed for a fifth week of declines, the longest stretch in more than two years.

Malaysian consumer prices increased 0.2 percent in February from a year earlier, the smallest gain since November 2009, according to a Bloomberg survey ahead of a government report due at noon local time Friday. Bank Negara Malaysia left its key interest rate unchanged for a fourth straight meeting this month.

Should inflation slow as forecast, this would raise the prospect of deflation and could prompt the central bank to lower interest rates, Tim Condon, head of Asia research at ING Groep NV in Singapore, wrote in a research note Friday.

“Some people are still looking at a possible rate cut,” said Nik Mukharriz Muhammad, a Kuala Lumpur-based fixed-income analyst at CIMB Investment Bank Bhd. “Inflation is not high and they are probably concerned about economic growth.”