Ringgit gains most in Asia as central bank says it's undervalued

KUALA LUMPUR (Bloomberg) - Malaysia's ringgit gained the most in Asia after the central bank governor reiterated that the currency is "significantly undervalued."

The ringgit is the region's worst-performing currency in the past six months due to a combination of a plunge in oil and concern that state investment fund 1Malaysia Development will default on its debt. It dropped to a six-year low on Wednesday.

The country's banking system won't collapse in the event of loan defaults by 1MDB, Bank Negara Malaysia Governor Zeti Akhtar Aziz told reporters in Kuala Lumpur Wednesday.

"Bank Negara is saying that alarm over the ringgit and 1MDB is overdone," said Mr Vishnu Varathan, a Singapore-based economist at Mizuho Bank. "That's a good deterrent for those who bet against a credible central bank."

The ringgit strengthened 0.3 per cent to 3.6862 a US dollar as of 10.08am in Kuala Lumpur, according to data compiled by Bloomberg. That's the biggest gain since Feb 26 and adds to Wednesday's 0.2 per cent advance.

Malaysian government bonds halted a three-day decline. The 10-year note yield fell one basis point, or 0.01 percentage point, to 3.99 per cent, according to data compiled by Bloomberg.

The Treasury will sell RM4 billion (S$1.5 billion) of 2025 bonds on Thursday today, according to the central bank's website. Bidding ends at 11.30am local time.