Ringgit falls as Maybank sees higher taxes in budget
Malaysia’s ringgit dropped for a fourth day ahead of the budget tomorrow, when Malayan Banking Bhd says there’s a possibility Prime Minister Najib Abdul Razak will announce higher taxes to compensate for the loss of revenue from oil.
While the currency has rallied with the rest of emerging markets this month, it’s still Asia’s worst performer as a decline in Brent crude cuts earnings for the region’s only major net oil exporter.
Najib will reveal measures to strengthen the ringgit, Trade Minister Mustapa Mohamed said in Parliament on Tuesday, after both the prime minister and the central bank governor earlier stressed there’s no plan to revisit capital controls imposed during the Asian financial crisis.
“The ringgit continues to retrace lower on weaker oil prices and as the selloff in the US dollar looks to have run its course,” said Khoon Goh, a Singapore-based senior currency strategist at Australia & New Zealand Banking Group Ltd. “The Malaysian budget will also be a focus for the market to see whether ongoing fiscal consolidation can be achieved in a tough environment.”
The ringgit declined 0.7 percent to a two-week low of 4.2955 a dollar as of 10.36am in Kuala Lumpur, adding to a 3.5 percent loss in the previous three trading days, according to prices from local banks compiled by Bloomberg. The currency has dropped 18 percent this year amid a 15 percent slide in Brent crude, which is down more than half since its peak in June 2014.
Fiscal deficit
Malaysia wants certainty and stability in the ringgit, Trade Minister Mustapa said. Parliament reconvened this week following a scheduled break, with Najib facing the prospect of a no-confidence vote over political donations and the government’s handling of an investigation into state investment company 1MDB.
The government aims to cut the fiscal deficit to 3.2 percent of gross domestic product this year from 3.5 percent, after amending the target from 3 percent in January as Brent crude continued to slide. The 2016 shortfall is expected to be announced at 3 percent in tomorrow’s budget, according to forecasts from ANZ, United Overseas Bank Ltd, Maybank and Affin Hwang Investment Bank Bhd.
Najib may allocate RM52 billion to development expenditure in the budget, up from an estimated RM48.5 billion this year, as infrastructure spending increases, Maybank and RHB Research Institute Sdn predict. The budget will be “one of the most difficult,” the premier was quoted as saying in a New Straits Times report on Monday.
Malaysia’s five-year sovereign bonds rose, with the yield falling two basis points to 3.73 percent, prices from Bursa Malaysia show. The 10-year yield was steady at 4.14 percent.
- Bloomberg
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