Ringgit set for best month in a year

Malaysia’s ringgit headed for its best month in more than a year and government bonds advanced on speculation monetary easing in Japan and the US has spurred inflows into the nation’s assets.

Bank of Japan Governor Haruhiko Kuroda announced on April 4 a plan to buy 7.5 trillion yen (US$77 billion) of debt a month, almost as much as the Federal Reserve’s US$85 billion of purchases. Malaysia’s overnight policy rate is at three per cent, compared with 0.1 per cent in Japan and 0.25 per cent in the US. The FTSE Bursa Malaysia KLCI Index of shares closed at an all-time high on April 26, while the yield on benchmark five-year government bonds touched an eight-month low of 3.16 per cent on April 15.

"The search for higher yields has benefited the ringgit," said Choong Yin Pheng, a senior manager for fixed income and economic research at Hong Leong Bank Bhd in Kuala Lumpur. "We still enjoy a positive interest-rate differential."

The ringgit strengthened 2.1 per cent this month, the most since January 2012, to 3.0292 per dollar as of 9.33am in Kuala Lumpur, according to data compiled by Bloomberg. It is the best performer among Asia’s 11 most-traded currencies in April. The ringgit rose 0.1 per cent today, the fifth day of gains.

Malaysia will hold general elections on May 5, with the ruling Barisan Nasional coalition attempting to extend its unbroken 55-year run in power since independence. The ringgit, which weakened 1.2 per cent against the dollar in the first quarter, has benefited since Prime Minister Datuk Seri Najib Razak dissolved parliament on April 3, removing uncertainty as to the timing of elections, Choong said.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, climbed 151 basis points in April and 40 basis points today to 8.34 per cent.

The yield on the 3.26 per cent bonds due March 2018 dropped six basis points, or 0.06 percentage point, this month to 3.16 per cent, according to data compiled by Bloomberg. The rate was steady today.-- Bloomberg

(Source: http://www.btimes.com.my)