Ringgit sinks further to new lows

The ringgit is now down 2.9 per cent since Tuesday when China announced its decision to devalue its currency, and has lost more than 10 per cent in the past six months:
The ringgit is now down 2.9 per cent since Tuesday when China announced its decision to devalue its currency, and has lost more than 10 per cent in the past six months:ST PHOTO: KEVIN LIM

It falls 1.5% against the Singdollar to 2.9087 and 1.7% against the US dollar to 4.0775

Falling oil prices, political unrest at home and fears over China's economy sent the ringgit crashing against the Singapore dollar and greenback yesterday.

The battered currency tumbled 1.5 per cent against the Singdollar, leaving it at a record low of 2.9087. It is now down 2.9 per cent since Tuesday when China announced its decision to devalue its currency, and has lost more than 10 per cent in the past six months.

It was much the same with the US dollar, with a 1.7 per cent fall to 4.0775, the lowest in 17 years.

Although Malaysia reported better-than-expected economic data on Thursday and the chaos ignited by China's yuan devaluations had eased somewhat, the ringgit did not get any respite yesterday.

The bloodletting continued across the Causeway, even as some markets and some other currencies appeared to have stabilised after reassurances from China that it supports a strong, stable yuan in the long term. This was sparked in part by West Texas Intermediate falling to 61/2-year lows of around US$41.91 a barrel, while Brent slipped to US$49.22 a barrel.

Most economists do not think the central bank will re-introduce capital controls despite the ringgit's plunge and foreign exchange reserves falling below US$100 billion.

Malaysia's central bank governor Zeti Akhtar Aziz added to the concerns on Thursday, stating that the authority will need to rebuild foreign exchange reserves that have fallen below US$100 billion (S$140 billion) for the first time since 2010. This sparked fears over whether the country has sufficient ammunition to defend its currency against more shocks, including a continued flow of foreign funds bailing out of the country. These funds dumped about RM12 billion in Malaysian equities and RM19 billion in bonds in the first half of the year.

Mr Sailesh K. Jha, chief Asia economist of Credit Suisse Private Banking and Wealth Management, said capital outflows will likely continue as expectations again firm over a US interest rate hike next month.

"The balance of risks is tilted towards funds outflow, which will likely continue as we head into our first rate hike expectation in September, and as oil prices come down, affecting Malaysia's current account balance," he said.

"Events in Malaysia will challenge Singapore's outlook. But the bigger drivers for our economy are weaknesses in China's exports, weak demand for Asian products from the G3 economies; and Asia's export sector becoming structurally less competitive due to cost pressures and elevated real effective exchange rates in many countries," he said.

Most economists do not think the central bank will re-introduce capital controls despite the ringgit's plunge and foreign exchange reserves falling below US$100 billion.

"Introducing controls will be a regressive move and a very large setback, hurting the economy and financial sector, and derailing any ambitions of becoming an international Islamic financial centre. Malaysia's reputation and credibility (still) remain tainted by the capital controls of 1998," Bank of America Merrill Lynch Asean economist Chua Hak Bin said.

But despite assurances from officials, Mr Chua said he cannot rule out the risk.

"Malaysia's vulnerability is also heightened by higher leverage than during the Asian crisis... Even if half of external debt is ringgit-denominated, foreign withdrawals will still pressure the ringgit and foreign exchange reserves," he added.

A version of this article appeared in the print edition of The Straits Times on August 15, 2015, with the headline 'Ringgit sinks further to new lows'. Print Edition | Subscribe