KUALA LUMPUR • Malaysia's attempts to force currency traders overseas to stop selling down the ringgit, as investors flee the country's bond market, has had little discernible impact so far, traders and analysts say as the currency hit a fresh low against the Singapore dollar yesterday.
The Malaysian currency weakened to RM3.1294 against the Singdollar although it recovered slightly subsequently. The ringgit also weakened to a fresh low of RM4.465 against the greenback.
Over a week ago, Bank Negara Malaysia demanded that offshore banks confirm through signed letters that neither they nor their corporate clients would trade the ringgit on the non-deliverable forward (NDF) markets.
An NDF allows banks and companies to hedge or speculate on emerging market currencies overseas when exchange controls in those countries make it difficult to trade directly on the spot market.
Bank Negara sent the letters to about 58 firms in Malaysia that have connections to offshore ringgit trading. Only a half-dozen offshore firms signed the letters, the central bank said last week. The move has done little to bring ringgit trading onshore so far, traders said.
"If you think the economy is not doing well, then going onshore (to trade) will hardly help, as there is a high possibility the government may slap capital controls to protect its currency or domestic markets. And that would be very painful," said Mandarin Capital's chief investment officer Nitin Dialdas.
The ringgit has plunged nearly 7 per cent over the past two weeks, making it the worst performing currency in Asia. The reason for the tumble is mostly because foreign investors fled Malaysia's bond market - they own 40 per cent of it - after bond yields spiked across the world amid speculation that the stimulus policies of Mr Donald Trump when he takes office as US president will ignite inflation.
The immediate risk for Malaysia is its US$81.4 billion worth of short- term external debt, said senior economist Trinh Nguyen at Natixis investment bank in Hong Kong.
The central bank has less ammunition to defend the ringgit. Foreign currency reserves stood at US$98.3 billion (S$140 billion) as of Nov 15, Bank Negara said, about a third below the record US$141.4 billion reached in 2013.