KUALA LUMPUR, Sept 18 ― Malaysia’s ringgit fell to a three-month low on speculation an increase in the Federal Reserve’s interest-rate target will spur outflows from emerging markets.

The Fed raised by 25 basis points its median estimate for where the federal funds rate will be by the end of 2015 while reiterating a pledge to keep rates near zero for a “considerable time” once it completes a debt-purchase programme, Chair Janet Yellen said yesterday. Bank Negara Malaysia will maintain its policy rate at 3.25 per cent at today’s review after delivering a 25 basis point increase in July, according to 12 of 21 economists surveyed by Bloomberg.

“There’s a concern that when the US raises interest rates, that’s going to be positive for the dollar and there’ll be funds returning to the US,” said Ho Woei Chen, an economist at United Overseas Bank Ltd in Singapore. “I don’t think Bank Negara will be in a hurry to raise interest rates by another 25 basis points.”

The ringgit declined 0.6 per cent to 3.2355 per dollar as of 10:02 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It earlier reached 3.2392, the lowest level since June 4. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose as much as 19 basis points, or 0.19 per centage point, to 8.25 per cent, the highest since December 19.

Assess risks

The central bank will assess the risks to inflation and growth when setting policy, Governor Zeti Akhtar Aziz said in a September 3 interview in Kuala Lumpur. The government is due to introduce a goods and services tax of 6 per cent in April.

Malaysian consumer prices rose 3.3 per cent in August from a year earlier, official data showed yesterday. That exceeded the median estimate for a 3.2 per cent increase in a Bloomberg survey and was near the three-year high of 3.5 per cent reached in March and February.

While a consumption tax will “provide a temporary shock to inflation,” price pressures will fade, giving Bank Negara room to hold off from tightening by another 25 basis points for now, Barclays Plc’s Singapore-based economist Rahul Bajoria wrote in a research note yesterday.

One-year rate swaps were steady at 3.79 per cent and have climbed 10 basis points since the last policy review on July 10, data compiled by Bloomberg show. The contracts reached 3.80 per cent on August 27, the highest since September 2008.

Malaysia would be vulnerable to outflows from emerging markets as overseas investors held 32 per cent of government debt as of July, compared with 17 per cent in Thailand, according to central bank data.

The yield on the nation’s bonds due in March 2017 has climbed seven basis points since the July policy review to 3.6 per cent and was little changed today, data compiled by Bloomberg show. The yield on the 4.181 per cent July 2024 notes was steady at 4.01 per cent. ― Bloomberg