Malaysia’s ringgit fell to the weakest level in almost five years on concern a slide in oil will make it harder for the government to achieve its fiscal deficit target.
The currency depreciated 0.4 percent to 3.4400 per dollar as of 9:57 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It earlier dropped to 3.4455, the lowest since February 2010. The price of Brent crude has declined 38 percent from its June high, cutting revenue for oil exporter Malaysia.
Credit Suisse Group AG lowered its three-month ringgit forecast today to 3.49 per dollar from 3.38, and said the central bank may be willing to accept currency weakness to boost exports and offset the impact on the economy from the drop in oil. Prime Minister Najib Razak is seeking to cut the budget deficit to 3 percent of gross domestic product next year from 3.5 percent.
Ringgit weakness is a “reflection of the absolute collapse in oil,” said Michael Every, Hong Kong-based head of Asia Pacific financial markets research at Rabobank International. “The government is already under fiscal pressure.”
Brent dropped below $70 a barrel last week for the first time since 2010 after OPEC’s decision not to cut production to shore up prices. The contracts traded at $71.17 today after falling 2.8 percent overnight.
Malaysia will be the sole loser among Asia’s emerging markets from the decline in crude and the nation may miss its 2015 fiscal deficit target, according to Bank of America Merrill Lynch. A 10 percent drop in prices will reduce the nation’s growth by 20 basis points, economists including Singapore-based Chua Hak Bin wrote in a Dec. 1 report.
One-month implied volatility, a measure of the ringgit’s risk, rose 29 basis points to 8.63 percent, data compiled by Bloomberg show. The gauge has climbed 130 basis points, or 1.3 percentage points, so far this week.
Malaysia’s government bonds were little changed, with the yield on 10-year notes at 3.89 percent, data compiled by Bloomberg show.