Malaysia's reserves fall to 6-year low of US$94.5b as global currency rout deepens

The ringgit has weakened to a 17-year low and broke through its 1998 peg level in July amid a slump in commodities and slowing economic growth.
The ringgit has weakened to a 17-year low and broke through its 1998 peg level in July amid a slump in commodities and slowing economic growth. PHOTO: AFP

KUALA LUMPUR (BLOOMBERG) - Malaysia's foreign-exchange reserves extended their decline beyond US$100 billion in a sign the central bank is still trying to slow Asia's worst currency loss amid the drag from an emerging-market sell off.

Holdings fell 2.3 per cent to a six-year low of US$94.5 billion (S$31.92 billion) in the first 14 days of August from two weeks earlier, Bank Negara Malaysia data showed Friday, after they dropped below US$100 billion last month for the first time since 2010. While Southeast Asia's biggest economies excluding the Philippines have all drawn down reserves this year, Malaysia's slid four times as fast as those in Indonesia, whose rupiah is the second worst-performing currency.

The ringgit has weakened to a 17-year low and broke through its 1998 peg level to the Us dollar in July amid a slump in commodities and slowing economic growth. A political scandal centering on Prime Minister Najib Razak and a looming US interest-rate increase have spurred capital outflows, contributing to the currency's losses. Bank Negara Governor Zeti Akhtar Aziz reiterated Thursday she has no plan to return to a fixed exchange rate.

Against the Singapore dollar, the ringgit fell to a new all-time low around 2.97 on Friday (Aug 21), before the reserves figures were released. The ringgit ended the week 2.5 per cent lower at a new 17-year low of 4.1827 per US dollar. It has weakened 16 per cent in 2015, already surpassing any annual loss since 1997's 35 percent plunge.

"Weak sentiment continues to plague the ringgit," Jingyi Pan, a Singapore-based research analyst at Forecast Pte Ltd., said on Friday before the data release. "The central bank will likely moderate the pace of its intervention, while balancing the need to rebuild reserves."

Malaysia's foreign-exchange holdings are sufficient to finance 7.5 months of retained imports and are 1 time short-term external debt, according to a central bank statement accompanying the data.

The reserves dropped 19 per cent this year but are still well above the US$20 billion mark at the time of the 1997-98 Asian financial crisis. Those for Indonesia declined 3.9 per cent to US$108 billion, Singapore's fell 2.6 per cent to US$250 billion and Thailand's decreased 1.2 per cent to US$155 billion.

The rupiah weakened 11 per cent this year and the Thai baht and Singapore dollar dropped 7.7 per cent and 5.8 per cent, respectively, data compiled by Bloomberg show. While the Philippine peso has declined 4.2 per cent, its reserves climbed 1 per cent to US$80 billion.

"We have high levels of reserves and that is what reserves are for - to represent buffers during this period," Ms Zeti told reporters in Kuala Lumpur on Thursday. "We have held more than the amount of reserves our country needs, precisely for reversals."

China and Vietnam both devalued their exchange rates this month, threatening to reignite a global currency war to keep exports competitive. Kazakhstan also scrapped its fixed peg this week, triggering a 22 per cent slide in the tenge.

Prime Minister Najib said on Thursday that Malaysia remains committed to market-friendly policies and the ringgit doesn't reflect the nation's "strong fundamentals."

"We have to be patient and have the degree of resilience to ride out this period of uncertainty," Governor Zeti said.