KUALA LUMPUR • Malaysia's ringgit dropped for a third month and reached a 16-year low as a political scandal linked to the state investment company weighed on investor sentiment already flagging from a slump in oil.
A multiple probe into the finances of debt-ridden 1Malaysia Development Bhd (1MDB) spurred demand for the relative safety of government bonds, with a Bloomberg index of local securities rising for the seventh month.
The ringgit is Asia's worstperforming currency this year and foreign exchange reserves have declined to their lowest level since 2009 on suspected central bank intervention to stem the losses.
"Negative sentiment surrounding the recent political developments has weighed on the ringgit," said Mr Khoon Goh, a strategist at Australia & New Zealand Banking Group in Singapore.
"Growing concern over the country's reserves is also partly behind the weakness."
The ringgit weakened 0.2 per cent yesterday - and 1.4 per cent last month - to 3.8250 to the US dollar, prices from local banks compiled by Bloomberg show.
It had fallen to 3.8260 earlier, the lowest since 1998 during the Asian financial crisis.
Malaysia's central bank is discouraging local and foreign financial institutions from entering into transactions that would result in selling the ringgit, The Star newspaper reported yesterday, citing dealers it did not identify.
Dealers reportedly got offers to enter into a "put" option for the ringgit over a period of between three and six months, which means punters are of the view that the ringgit will go to RM4 to the dollar in coming months and are prepared to take delivery from the dealer at that price when the time comes.
The ringgit is Asia's weakest currency this year, having shed nearly 9 per cent of its value against the dollar. The decline largely reflects concerns over its vulnerability to rising US interest rates and the halving in the price of oil in the past year, which has dragged down the price of gas. Malaysia is the world's second-largest exporter of liquefied natural gas.
Twelve-month non-deliverable forwards fell 2.9 per cent last month to 3.9929 after Prime Minister Najib Razak sacked his deputy on Tuesday as he sought to head off a public rift within the Cabinet amid allegations made in a Wall Street Journal report that money linked to 1MDB found its way into his bank accounts, a claim he rejects.
Also removed this week was the attorney-general who was helping to head one of the four probes.
Malaysian government bonds returned 0.4 per cent last month, the Bloomberg index shows. The 10-year yield rose 7 basis points during the month to 4.09 per cent and the five-year yield dropped 2 points to 3.62 per cent, according to Bursa Malaysia prices.
Foreigners own US$48 billion (S$66 billion) of Malaysian government bonds - equivalent to half the country's reserves.
BLOOMBERG, REUTERS
