Ringgit Leads Emerging-Market Losses While PM Najib Revises Deficit

By Elffie Chew

Malaysia’s ringgit fell the most in emerging markets as Prime Minister Najib Razak revised the fiscal deficit target higher and lowered the 2015 economic growth forecast due to a plunge in oil prices.
The currency dropped the most against the greenback since December, a move that was compounded by the IMF cutting its global expansion estimate while upgrading its projection for the U.S. The Bloomberg Dollar Spot Index rose for a third day ahead of the Bank of Japan’s policy meeting and on speculation the European Central Bank will add to its bond purchases this week. Nine of Asia’s 11 most-traded currencies declined.
“The stronger dollar, the slump in oil prices hitting economic growth and the delay in fiscal consolidation are weighing on the ringgit,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “The IMF downgrade highlights the growth divergence between other major economies and the U.S.”
The currency fell 1 percent to 3.6075 a dollar in Kuala Lumpur, after
reaching 3.6153, the lowest level since April 2009, data compiled by Bloomberg show. The five-year government bond yield climbed three basis point, or 0.03 percentage point, to 3.82 percent. The FTSE Bursa Malaysia KLCI Index of shares dropped 0.2 percent.

‘Proactive Measures’

Malaysia’s budget shortfall will come in at 3.2 percent of gross domestic product this year, instead of the previous 3 percent estimate, Najib said in a special session in Putrajaya outside the capital Kuala Lumpur Tuesday. The economy will expand 4.5 percent to 5.5 percent in 2015, versus 5 percent to 6 percent, he said, adding that the nation isn’t in crisis.
The ringgit has weakened 12 percent in six months on concern that a 57 percent slump in Brent crude since June will reduce earnings for Asia’s only major oil exporter and weigh on the current-account surplus, a key support for the ringgit. The balance must remain in excess, the prime minister said today.
Najib stressed that the government will take specific and proactive measures to support the economy. Without official intervention, the 2015 fiscal deficit would be 3.9 percent of GDP, he said.
Oil-related industries account for a third of the Southeast Asian nation’s state revenue. Najib said Malaysia is actually a “net petroleum importer” as he cut the oil price assumption target to $55 a barrel from the $100 outlined in the budget. Brent decreased 1 percent to $48.34, adding to yesterday’s 2.7 percent slide.
The International Monetary Fund cut its 2015 global growth forecast to 3.5 percent from the 3.8 percent projected in October, according to a quarterly reported released in Washington late yesterday. The U.S. will expand 3.6 percent from the previous 3.1 percent estimate.
Official data tomorrow may show Malaysia’s inflation slowed to 2.8 percent in December from a year earlier, versus 3 percent the previous month, according to the median forecast in a Bloomberg survey.