KUALA LUMPUR (BLOOMBERG, REUTERS) - Malaysia's ringgit weakened beyond the psychologically important 4 per US dollar level for the first time since 1998 as investors flee the country's assets after China's shock devaluations and amid a slowing economy and controversy over finances linked to Prime Minister Najib Razak.
The ringgit tumbled more than 1 per cent to 4.0025 a US dollar as of 11.02am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The Malaysian unit was trading down 1.1 per cent to 4.0040 to the US dollar as of 0335 GMT (11.35am in Singapore), its weakest since Sept 1, 1998.
The ringgit also lost ground against the Singapore dollar, which was itself hit by China's second yuan devaluation on Wednesday (Aug 12). The Malaysian currency was trading at 2.84 to the Singdollar at about 11.45am, down from its close at 2.82 on Tuesday.
China's surprise devaluation of the yuan has lumped more pressure on the ringgit on speculation policy makers will favor weaker exchange rates to prop up faltering exports. The ringgit has lost about 20 per cent in the past 12 months in Asia's worst performance.
Malaysia is already reeling from slumping Brent crude prices that have cut government earnings for the net oil exporter, and a looming US interest-rate increase. Mr Najib has come under the spotlight over a RM2.6 billion (S$920 million) donation deposited into his personal bank accounts and which was initially linked to state investment company 1Malaysia Development Bhd.
Global funds have pulled about US$3 billion (S$4.23 billion) from the nation's equities in 2015, the most since 2008, and the FTSE Bursa Malaysia KLCI Index has lost more than 13 per cent from this year's high in April. Overseas ownership of Malaysian government and corporate debt fell to the lowest level in three years in July.
Malaysia's foreign-exchange reserves dropped below US$100 billion last month for the first time since 2010 to settle at US$96.7 billion. The central bank will continue to "smoothen out excessive volatility," Julia Goh, an analyst at United Overseas Bank, wrote in a research note on Tuesday. Bank Negara Malaysia failed to stop the ringgit falling through its 1998 peg level of 3.8 a dollar in July.
The monetary authority has spent US$25 billion defending the currency since July 2014, after adjusting for valuation effects, Philip McNicholas, a Singapore-based economist at BNP Paribas SA, wrote in a July 24 report.
Malaysia pegged the ringgit at 3.8000 to the US dollar from early September 1998 to support the currency during the Asian financial crisis. The country took the ringgit off the peg in 2005.