Ringgit Falls to a Two-Day Low over Fiscal Deficit Fears

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Ringgit Falls to a Two-Day Low over Fiscal Deficit FearsThe ringgit declined the most in two days since April over fears that Malaysia’s budget deficit will take a turn for the worse amid rising crude oil prices.

The ringgit declined 0.2 percent to trade at 3.2263 a dollar at 4:53 p.m. local time. The currency has lost 0.6 percent over the last two days, its steepest decline since April 22. The ringgit’s one-month implied volatility, which measures the expected shifts in the exchange rate used to assign prices to options, grew 0.12 percentage point, or 12 basis points, to 5.30 percent.

“The situation in Iraq has oil prices going up and perhaps this is getting investors a bit nervous,” Khoon Goh, a Singapore-based currency strategist at Australia & New Zealand Banking Group Ltd. told Bloomberg. “There’s still a bit of the subsidy that the Malaysian government dishes out, so on the fiscal situation, which could lead to some deterioration.”

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The Malaysian government has slashed fuel subsidies in a bid to reduce fiscal deficit to around 3.5 percent of the gross domestic product in 2014 from 3.9 percent last year. The Brent crude rose to a nine-month high, passing the $114 per barrel mark on June 13 as the Iraq crisis worsened, with the government battling Sunni-linked militants.

The ringgit has declined 0.4 percent in June, making it Asia’s third-worst performing currency after the Indonesian rupiah and India’s rupee. Malaysia is expected to reduce subsidies on various items such as fuel by 15.6 percent to about 39.4 billion ringgit ($12.2 billion) this year.

The yield on the country’s 4.181 percent sovereign bonds that will mature in July 2024 remained slightly unchanged at 4.05 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com