Malaysian foreign reserves maintain recovery in September

While the ringgit has strengthened 2 per cent from its lowest level since the Asian financial crisis reached on Sept. 10, partly after the U.S. refrained from raising interest rates, it remains vulnerable to an emerging-market selloff once the Federa
While the ringgit has strengthened 2 per cent from its lowest level since the Asian financial crisis reached on Sept. 10, partly after the U.S. refrained from raising interest rates, it remains vulnerable to an emerging-market selloff once the Federal Reserves does tighten policy. PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - Malaysia's foreign-exchange reserves maintained their recovery, a sign the central bank relaxed its intervention stance even as the ringgit slumped to a new 17-year low.

The holdings increased 0.6 per cent to US$95.3 billion (S$134.05 billion) in the fortnight to Sept. 15, according to figures from Bank Negara Malaysia issued after the local currency market closed on Tuesday. They rose in the last two weeks of August from a six- year low of US$94.50 billion, underscoring a pledge by the central bank governor to rebuild the reserves.

While the ringgit has strengthened 2 per cent from its lowest level since the Asian financial crisis reached on Sept. 10, partly after the U.S. refrained from raising interest rates, it remains vulnerable to an emerging-market selloff once the Federal Reserves does tighten policy. The currency resumed its slide this week after reports relating to state investment company 1Malaysia Development Bhd. and the prime minister spurred further weakness, renewing pressure on the central bank.

"It's likely we will see the foreign-exchange reserves recover in the coming months, though risks remain with the uncertainty of the Fed hike timing," Jingyi Pan, a Singapore- based research analyst at Forecast Pte, said Tuesday before the data was released. "While we certainly will not see a repeat of July's intervention, the central will still step in to ensure monetary stability by stemming out volatility if necessary."

The ringgit closed at 4.2960 a dollar in Kuala Lumpur on Tuesday and has lost 25 per cent in the past 12 months in Asia's worst performance, as Brent crude collapsed, prices from local banks compiled by Bloomberg show. It dropped to 4.3798 on Sept. 10, the lowest since January 1998.

The reserves have declined 18 percent in 2015 and Tuesday's central bank report said they are currently enough to finance 7.3 months of retained imports and are 1.1 times the short-term external debt.

1MDB, whose advisory board is chaired by Prime Minister Najib Razak, came under the spotlight last year due to its rising debt, drawing criticism from opposition law makers and calls for the premier to step down. A subsequent investigation by the Malaysian Anti-Corruption Commission revealed about $700 million that found its way into Najib's bank accounts was from political donations and not related to 1MDB - the accounts were closed in 2013.

The ensuing scandal has weighed on the ringgit, which was already feeling the pinch from falling Brent crude prices, cutting government revenue for Malaysia as Asia's only major oil exporter. Central bank Governor Zeti Akhtar Aziz said in Kuala Lumpur on Monday she's confident the reserves will be rebuilt and that the monetary authority only intervenes to smooth volatility in the foreign-exchange market.

Reports unfolded this week from the Wall Street Journal and the New York Times revealing investigations ranging from money laundering by 1MDB to U.S. properties purchased by shell companies owned by Najib's stepson. The Malaysian currency will recover and reflect fundamentals once China's economy stabilizes and domestic issues such as those relating to the state investment company are resolved, Ms Zeti said Monday. 1MDB responded on Tuesday by saying it shouldn't be held responsible for the ringgit's weakness.