KUALA LUMPUR, July 31 — Malaysia’s ringgit headed for its longest stretch of monthly gains since 2012 on speculation fund inflows will quicken as the nation’s economic outlook improves.

Local-currency bonds returned 0.7 per cent in July in the best performance this year as data showed exports climbed for an 11th month in May. Bank Negara Malaysia increased its policy rate for the first time in three years on July 10. Policy makers at the Federal Reserve pledged this week to keep borrowing costs low for a considerable time after completing its asset-purchase programme.

“I’m still slightly bullish on the ringgit on the nation’s fundamentals, Bank Negara’s prospective tightening and China’s recovery,” said Gao Qi, a markets strategist at Royal Bank of Scotland Group Plc in Singapore. “External liquidity remains accommodative.”

The ringgit strengthened 0.7 per cent since June 30, a third month of gains, to 3.1888 per dollar as of 10:12 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. That’s the biggest advance among Asian currencies after Indonesia’s rupiah and Thailand’s baht. It dropped 0.2 per cent today.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 25 basis points, or 0.25 percentage point, this month to 5.07 per cent, data compiled by Bloomberg show. The rate climbed two basis points today.

Southeast Asia’s third-biggest economy is forecast to grow 5 per cent to 5.5 per cent in 2014 after expanding 4.7 per cent last year, according to an e-mailed statement from the Finance Ministry on July 23. This compares with a central bank prediction in March for a gain of 4.5 per cent to 5.5 per cent.

Interest rates

The central bank raised the benchmark rate by 25 basis points to 3.25 per cent on July 10, and said inflation will probably remain above the long-run average.

One-year interest rate swaps rose two basis points in July to 3.70 per cent, the highest since 2008, indicating rising bets for another increase in borrowing costs within the coming year.

Official data this month showed exports and factory output climbed 16.3 per cent and 6 per cent, respectively, in May, both exceeding economists’ estimates. The nation recorded a current- account surplus of 19.8 billion ringgit (US$6.2 billion) in the first quarter, the biggest excess since the last three months of 2012, according to a May 16 report.

Global funds increased holdings of Malaysian sovereign and corporate debt by 5.7 per cent to a record 249 billion ringgit in May from April, central bank data show.

The Bloomberg Malaysia Local Sovereign Index rose 0.7 per cent in July, headed for its biggest monthly advance since October 2013. The yield on Malaysia’s 4.181 per cent sovereign bonds due July 2024 basis points declined 15 basis points since June 30 to 3.89 per cent, data compiled by Bloomberg show. The rate was steady today. — Bloomberg