KL central bank acts to slow ringgit's slide

KUALA LUMPUR • Malaysia's central bank started taking in interbank dollar deposits for the first time last month to try and slow a slide in Asia's worst-performing currency.

Bank Negara Malaysia is accepting deposits in small amounts, in a move to help build up the country's currency reserves, according to people familiar with the matter, who asked not to be identified.

The authority said that it is encouraging financial institutions to keep foreign currency earnings and deposits of Malaysian-based companies in the domestic market.

Falling reserves have fuelled speculation that the central bank has been intervening by selling US dollars to help prop up the ringgit.

The holdings dropped below the US$100 billion (S$140 billion) mark in July, for the first time since 2010. They have since recovered slightly but are still down 19 per cent this year, at US$94.1 billion.

"The move will take the pressure off the ringgit," said Mr Nizam Idris, head of currencies and fixed-income strategy at Macquarie Bank in Singapore. "It will also help to stabilise foreign-exchange reserves as it reduces the need for the central bank to intervene."

The ringgit dropped to a 17-year low last month as Brent crude prices fell, crimping government revenue for the region's only major net oil exporter.

Rising debt at state investment company 1Malaysia Development Berhad, slowing growth in China and prospects of higher US interest rates also spurred capital outflows, weighing on the currency. It has fallen almost 19 per cent this year.

The central bank said on Thursday that its move is to ensure there is sufficient dollar liquidity in the financial system to meet the needs of businesses and households.

"To achieve this, financial institutions including foreign banks are encouraged to recycle the foreign currency earnings and deposits of local corporations in the domestic markets," it said.

Central bank governor Zeti Akhtar Aziz pledged in August to rebuild the reserves. She has, along with Prime Minister Najib Razak, said there is no plan to revisit capital controls imposed during the Asian financial crisis.

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A version of this article appeared in the print edition of The Straits Times on October 31, 2015, with the headline 'KL central bank acts to slow ringgit's slide'. Print Edition | Subscribe