Ringgit falls as Fitch warns Malaysia may miss its deficit target

Malaysian ringgit notes are seen among other currency notes in this photo illustration.
Malaysian ringgit notes are seen among other currency notes in this photo illustration.PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - The ringgit declined the most in a week after Fitch Ratings said the Malaysian government may miss its 2016 fiscal deficit target as the economy remains under pressure from lower commodity prices.

The shortfall could exceed Prime Minister Najib Razak's estimate of 3.1 per cent of gross domestic product, the ratings agency said in a statement on Tuesday (Oct 27).

Fitch estimates the slippage is unlikely to increase Malaysia's debt ratio, which will remain around 52 per cent of GDP until 2017.

In the budget presented last Friday, Mr Najib unveiled plans to raise taxes for high-income earners and accelerate infrastructure development while lowering the deficit from 3.2 per cent in 2015.

"Fitch didn't help," said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. "The worry is that with oil prices looking as soggy as they are and economic headwinds persisting, hopes for uninterrupted fiscal consolidation may be a little overdone."

The ringgit declined 0.8 per cent, the most since Oct 20, to 4.2642 per US dollar as of 11:06 am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg.

Against the Singapore unit, the ringgit weakened to 3.0598 per Singdollar from its close of 3.0360 on Monday.

While the ringgit has gained 3 per cent this month on fading bets for a US interest-rate increase in 2015, it's still the worst performer in Asia this year as a slump in Brent crude cuts the oil exporting nation's revenue.

The Bloomberg Commodity Index of 22 raw materials from oil to metals fell for a fifth day, headed for the longest stretch of declines in two months.

Fitch raised the outlook on Malaysia's A-rating, the fourth-lowest investment grade, in June after earlier warning of a downgrade due to a deterioration in the nation's finances.

Sovereign bonds rose, with the 10-year yield falling two basis points to 4.10 per cent, the lowest since August 5, according to prices from Bursa Malaysia.