Malaysia's central bank severely curtails ringgit trading after jump in overnight rates against US dollar

The headquarters of Bank Negara Malaysia in Kuala Lumpur, Malaysia.
The headquarters of Bank Negara Malaysia in Kuala Lumpur, Malaysia. PHOTO: BLOOMBERG

KUALA LUMPUR - Malaysia's central bank on Friday (Nov 11) severely curtailed trading of the ringgit after overnight rates against the US dollar jumped by close to 5 per cent.

Local banks are only allowed to offer dollars at Thursday's cheaper range and for specific corporate payments only.

The shock move has left traders in a lurch, and sparked fears that the ringgit - already battered in the past two years - would face huge selldown when the controls are lifted.

It is understood that no information was given as to whether the currency controls would be lifted ahead of the weekend.

Bank Negara Malaysia (BNM) has yet to respond to The Straits Times at this point, but sources said the central bank made "direct instructions to banks" without further explanation to other stakeholders. 

 

A banking source told The Straits Times that "Bank Negara told onshore banks not to provide any forex to offshore today and cannot trade higher than yesterday's range for today".

"This is effectively an unofficial capital control. Foreign bond holders can't even convert ringgit to foreign currency after selling bonds," the source added.

Earlier, when announcing Malaysia's third quarter economic results, BNM governor Muhammad Ibrahim said "normally we don't reveal the specifics", but added that "it is incumbent upon the central bank to... calm market nerves".

"On a daily basis when we interact with the market, we want to make sure that the noise is not too loud that it makes the price gravitate towards both ends," he told reporters, adding that BNM must "show its presence in the market" during ringgit volatility by "asking banks to ensure the pricing is correctly done.

The central bank told state news agency Bernama that there is no freeze on forex trading involving the ringgit, while the local exchange rate was only slightly lower at 4.275 to the dollar, after closing at 4.259 on Thursday.

However, the offshore value of the ringgit has continued to shrink to as low as 4.55 on Friday, although it recovered in afternoon trade.

Overnight, the ringgit fell along with other emerging market currencies against the greenback following Mr Donald Trump's victory in the US presidential elections on Wednesday, likely sparking the move by the Malaysia's central bank.