Ringgit extends worst start since 2009 as oil slump hits revenue

The ringgit fell 0.6 per cent to 4.4045 per US dollar as of 2pm in Kuala Lumpur on Jan 12, 2016.
The ringgit fell 0.6 per cent to 4.4045 per US dollar as of 2pm in Kuala Lumpur on Jan 12, 2016.PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - Malaysia's ringgit extended its worst start to a year since 2009 on Tuesday (Jan 12) as a slump in Brent crude clouds the outlook for Asia's only major net oil exporter just as uncertainty over China rattles global markets.

A slide in Brent to an 11-year low has prompted Prime Minister Najib Razak to review the 2016 annual budget. Plantation Industries and Commodities Minister Douglas Uggah Embas said last week that Malaysia risks losing RM300 million (S$97.8 million) for every one US dollar drop in oil. Moody's Investors Service cut the nation's credit outlook on Monday to stable from positive, citing the impact on government revenue. Sovereign bonds rose.

The currency snapped a two-day gain and fell 0.6 per cent to 4.4045 per US dollar as of 2pm in Kuala Lumpur, prices from local banks compiled by Bloomberg show. That took its decline in 2015 to 2.5 per cent after last year's worst annual loss in Asia.

"Falling crude oil prices and uncertainty involving the slowdown in China are weighing on the ringgit," said Mr Zulkiflee Mohd. Nidzam, head of foreign-exchange and bond trading at Kuala Lumpur-based Asian Finance Bank Bhd. "If these persist, the ringgit could weaken further to 4.45 a US dollar in the near term."

Since Moody's assigned a positive outlook in November 2013 the government has sought to improve its finances, rationalising fuel subsidies and putting in place a goods and services tax, the ratings company said on Monday. But the impact on the balance sheet has been limited and will remain so, in part due to changes in the external environment, it said.

Malaysia's 10-year government bond yield fell two basis points to 4.22 per cent, according to prices from the stock exchange. The five-year yield dropped five basis points to 3.47 per cent, the biggest decline in three weeks.

Brent crude has fallen 17 per cent so far this year to US$30.66 (S$44.15) a barrel in Asia on Tuesday, adding to the 35 per cent drop in 2015. The commodity last breached US$30 in 2004. The price is much lower than the US$48 assumption in Datuk Seri Najib's 2016 budget. He aims to cut the fiscal deficit to 3.1 per cent of gross domestic product this year from an estimated 3.2 per cent in 2015.

The nation's factory output growth slowed to 1.8 per cent in November from a year earlier, the least since July 2014, the government reported on Monday. The ringgit slumped 19 per cent last year and reached a 17-year low of 4.48 a US dollar in September.