Aug 11, 2015

    Ringgit at 17-year low as forex reserves fall

    MALAYSIA'S ringgit yesterday plumbed lows last seen during the Asian Financial Crisis 17 years ago, after a fall in foreign exchange reserves raised doubts over the currency's ability to withstand pressure from political uncertainty and slower growth.

    Investor sentiment towards Malaysia has deteriorated in recent weeks, as Prime Minister Najib Razak became engulfed in a scandal over indebted state fund 1Malaysia Development Berhad (1MDB).

    The ringgit dropped to 3.9300 per United States dollar, compared with the previous close of 3.9220. It was the weakest level since Sept 2, 1998, the day before the government pegged it at 3.8000 per US dollar to put a floor under the currency during the Asian Financial Crisis. Malaysia lifted the peg in 2005.

    Malaysia's international reserves fell to US$96.7 billion (S$134 billion) as of July 31 from US$100.5 billion on July 15, data from the central bank, Bank Negara Malaysia (BNM), showed on Friday.

    BNM has been selling US dollars and buying ringgit since June, in an attempt to stem the ringgit's slide as Mr Najib defended himself against allegations of corruption, traders said.

    "BNM is between a rock and hard place," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.

    "If it lets the ringgit fall, outflows will accelerate. To intervene, it will use up its foreign exchange (FX) reserves. So at the end, it needs to implement some capital controls."

    Despite the intervention, the ringgit is Asia's worst-performing currency this year, having lost around 11 per cent against the US dollar.

    The currency was earlier undermined by a slide in global commodity prices which had hurt export earnings and the government's fiscal position.

    Malaysia releases its second-quarter gross domestic product data on Thursday, amid rising concern over the outlook as industrial production in June rose 4.3 per cent from a year earlier, slightly short of market expectations.

    The ringgit's weakness reduced appetite among foreign investors for Malaysian assets. Kuala Lumpur stocks fell 2 per cent to their lowest since April 2013. Five-year government bond yield jumped to 3.856 per cent, its highest since Jan 16.

    "It now becomes a question of when does the bleeding stop?" asked Stephen Innes, senior trader for FX broker Oanda in Singapore.

    "The BNM agencies continue to sell US dollars to temper the move higher, but we are questioning, at what cost can they continue to do so, as further drops in reserves will likely accelerate the move higher?" Mr Innes added.