The ringgit edged even closer to the threshold of three to the Singapore dollar yesterday as new data on Malaysia's dwindling foreign exchange reserves cast more doubt on Bank Negara's ability to stem a currency crash.
The reserves fell US$2.2 billion (S$3.1 billion) in the first 14 days of this month and are now at US$94.5 billion, a level last seen six years ago in the wake of the 2008 financial crisis and about as much as what foreign investors are holding in terms of Malaysian government bonds.
"This one-to-one ratio is barely enough to (finance their debt) if foreign investors were to repatriate all their money out of Malaysia," said Mr Tan Teck Leng, foreign exchange strategist at UBS Wealth Management.
The central bank's dwindling munitions, combined with the oil price rout and messy local politics, sent the currency to a fresh all-time low yesterday. One Singdollar could buy 2.976 ringgit, down 17 per cent from a year ago.
Yesterday's report did show that Malaysia's reserves are being depleted at a slower pace. In the second half of last month, they had shrunk by US$3.8 billion, down from the US$5 billion outflow in the first two weeks of the month, the central bank said.
But the numbers are alarming nonetheless, said Mr Tan. "They will probably last another 19 months if they continue (to defend the ringgit) at this rate."
And slower depletion does not mean capital outflows have eased, noted Mr Nizam Idris, head of foreign exchange strategy at Macquarie: "It reflects only reduced intervention from Bank Negara."
On Thursday, Prime Minister Najib Razak said he would not peg the ringgit to the greenback or impose capital controls, citing Malaysia's "strong fundamentals".
One way to fend off short-sellers would be to hike interest rates. But five months into the roll-out of a 6 per cent goods and services tax, household consumption would be badly hit, said Mr Tan.
Datuk Seri Najib on Thursday called on government-linked corporations and Malaysian firms to bring liquid assets abroad back.
This could give Malaysia a powerful boost: Sovereign wealth fund Khazanah could liquidate about US$15 billion to US$17 billion while the Employees Provident Fund could contribute about US$40 billion, Mr Tan estimates. "But that is an emergency measure," he said. Malaysia must revive investor confidence, lest Malaysian firms use the greenback as a hedge, pushing the local currency even lower.