Malaysia takes action as ringgit plunges

The Malaysian ringgit touched a 10-month low of 4.34 to the US dollar at one point yesterday. It was trading at 3.08 against the Singapore dollar. But in the offshore NDF markets late last week, the ringgit dropped to a 12-year low.
The Malaysian ringgit touched a 10-month low of 4.34 to the US dollar at one point yesterday. It was trading at 3.08 against the Singapore dollar. But in the offshore NDF markets late last week, the ringgit dropped to a 12-year low. ST PHOTO: MARK CHEONG

Central bank demands commitment from foreign banks that they will stop trading currency in offshore markets

HONG KONG • The central bank of Malaysia is asking foreign banks for a written commitment to refrain from trading the ringgit in the offshore non-deliverable forwards (NDFs) market in its latest move to protect a weakening currency, banking sources said.

The central bank has sent a form letter to foreign banks which asks for an "unconditional representation and commitment" to stop trading in any offshore Malaysian ringgit non-deliverable forwards or offshore derivatives.

The letter also asks financial institutions to provide a detailed plan to the central bank of its needs to make ringgit transactions onshore and to seek help from Malaysian financial institutions for any foreign exchange transaction needs.

Bank Negara, in a statement to Reuters yesterday, confirmed it has made the request through banks in Malaysia.

"Bank Negara Malaysia has requested through onshore banks that any non-resident banks, which transact in the forex market, to attest that they are not and will not engage in NDF-related transactions," the statement said.

The letter follows a Bank Negara statement last Sunday saying the central bank would "re-enforce" rules against offshore trading of the ringgit. The bank said the ringgit is a non-internationalised currency and thus trading it in the overseas NDF markets "is not recognised".

ARRESTING THE FALL

It's not surprising, given how much (the ringgit) has lost. It sounds like a desperate intervention.

NORDEA MARKETS' CHIEF ANALYST AMY YUAN ZHUANG, in Singapore, on the Malaysian central bank's latest move.

Foreigners have been fleeing the Malaysian market in a global bond rout following Mr Donald Trump's win in the US presidential election last week, which sent the greenback soaring and has hit emerging market currencies particularly hard.

The Malaysian ringgit touched a 10-month low of 4.34 to the US dollar at one point yesterday. It was trading at 3.08 against the Singapore dollar. But in the offshore NDF markets late last week, the ringgit dropped to a 12-year low.

The central bank's move "is not surprising, given how much the ringgit has lost recently", said Nordea Markets chief analyst Amy Yuan Zhuang. "It sounds like a desperate intervention."

Bank Negara's comparatively small foreign exchange reserves have left it with fewer options, she said. "It needs such measures more than other Asian central banks."

Mr Stephen Innes, a senior forex trader for broker Oanda in Singapore, said the one-month spread for NDFs was still very wide.

"My feeling is that they are trying to effectively put on a capital control, as direct intervention will be difficult because of the fragile reserves situation," he said.

REUTERS


Correction note: An earlier version of this article said a Bank Negara statement was issued last Saturday. It should be last Sunday. 

A version of this article appeared in the print edition of The Straits Times on November 17, 2016, with the headline 'Malaysia takes action as ringgit plunges'. Print Edition | Subscribe