KUALA LUMPUR, Sept 20 — Malaysia’s ringgit was headed for its biggest weekly advance since the 1998 Asian financial crisis after the Federal Reserve unexpectedly refrained from cutting stimulus that’s spurred demand for emerging-market assets.

Fed Chairman Ben S. Bernanke said this week that more evidence of a recovery in the world’s largest economy is needed before the central bank starts to pare US$85 billion (RM274.9 billion) a month of bond purchases. The yield on Malaysia’s 10-year government notes slid to a two-month low, while the FTSE Bursa Malaysia KLCI Index of shares rallied 1.6 per cent since September 13.

“Strength in Asian currencies this week has a lot to do with the Fed’s decision not to taper,” said Nizam Idris, the head of fixed income and currency strategy at Macquarie Bank Ltd. in Singapore. “It gives countries with worsening current accounts more time to get their houses in order.”

The ringgit appreciated 4 per cent during the five days to 3.1650 per dollar as of 10:14 a.m. in Kuala Lumpur, the steepest increase since September 1998, data compiled by Bloomberg show. It reached 3.1463 yesterday, the strongest since June 18, before retreating 0.5 per cent today.

One-month non-deliverable forwards rose 3.8 per cent to 3.1683 from a week ago. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, surged 104 basis points, or 1.04 per centage point, to 10.48 per cent this week and climbed 18 basis points today.

Bonds, swaps

Fitch Ratings cut its credit-rating outlook for Malaysia to negative from stable in July, citing rising public debt levels. The nation’s current-account surplus shrank 70 per cent to RM2.6 billion (US$822 million) in the second quarter, the closest the country has come to recording a deficit, according to data compiled by Bloomberg going back to 1999.

Malaysia’s risk of a debt default is minimal as the government can reduce the fiscal deficit even if there’s capital outflows, Prime Minister Najib Razak said in an interview with CNBC broadcast today.

The cost to insure the nation’s sovereign debt for five years dropped 27 basis points this week to 100, the least in three months, CMA default swaps prices show.

Ten-year government bonds advanced for an 11th day, the longest winning streak since the 3.48 per cent notes were sold in March. The yield fell two basis points today and 10 basis points for the week to 3.69 per cent, according to data compiled by Bloomberg. The rate was the lowest since July 11. — Bloomberg