Malaysia’s ringgit hit hard amid geopolitical changes

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ringgit_us-dollar
The ringgit exchange rate to the US dollar is at levels last seen in 1998

Malaysia’s currency slid to levels last seen during the Asian financial crisis in 1998, reaching 4.4438 to the US dollar in November 23 trading even after the central bank intervened in currency markets and held its interest rate steady.

In November alone, the ringgit dropped as much as 5.8 per cent against the US dollar so far. Last year, Malaysia’s currency lost 18 per cent of its value against the greenback, making it Asia’s worst performing currency in US dollar terms.

One of the reasons the currency is tumbling is the reaction to Donald Trump’s election as US president which spurred a pullback from emerging markets. Investors dumped 1.1 billion ringgit ($247.5 million) of Malaysian stocks last week, the most since June.

Internal struggles such as the massive corruption scandal surrounding 1MDB and street protests against the prime Minister aren’t helping the currency to stabilise either.

The main problem is Malaysia’s debt structure. Foreigners hold almost 40 per cent of the total outstanding bonds in the Malaysia market, one of the highest proportions in Asia, making the country extremely vulnerable to capital outflows as investors switch funds out of emerging markets in anticipation that US interest rates will rise as a result of Trump’s pro-growth policies.

While Malaysia’s international reserves made some recovery earlier this year after plunging to $94.5 billion in 2015, they are still far below the May 2013 peak of $141.4 billion.

The central bank also asked banks to stop what it describes as “speculative and damaging” offshore trading in the ringgit in so-called non-deliverable forwards.

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[caption id="attachment_29237" align="alignleft" width="300"] The ringgit exchange rate to the US dollar is at levels last seen in 1998[/caption] Malaysia's currency slid to levels last seen during the Asian financial crisis in 1998, reaching 4.4438 to the US dollar in November 23 trading even after the central bank intervened in currency markets and held its interest rate steady. In November alone, the ringgit dropped as much as 5.8 per cent against the US dollar so far. Last year, Malaysia’s currency lost 18 per cent of its value against the greenback, making it Asia's worst performing currency in US dollar terms....

Reading Time: 1 minute

ringgit_us-dollar
The ringgit exchange rate to the US dollar is at levels last seen in 1998

Malaysia’s currency slid to levels last seen during the Asian financial crisis in 1998, reaching 4.4438 to the US dollar in November 23 trading even after the central bank intervened in currency markets and held its interest rate steady.

In November alone, the ringgit dropped as much as 5.8 per cent against the US dollar so far. Last year, Malaysia’s currency lost 18 per cent of its value against the greenback, making it Asia’s worst performing currency in US dollar terms.

One of the reasons the currency is tumbling is the reaction to Donald Trump’s election as US president which spurred a pullback from emerging markets. Investors dumped 1.1 billion ringgit ($247.5 million) of Malaysian stocks last week, the most since June.

Internal struggles such as the massive corruption scandal surrounding 1MDB and street protests against the prime Minister aren’t helping the currency to stabilise either.

The main problem is Malaysia’s debt structure. Foreigners hold almost 40 per cent of the total outstanding bonds in the Malaysia market, one of the highest proportions in Asia, making the country extremely vulnerable to capital outflows as investors switch funds out of emerging markets in anticipation that US interest rates will rise as a result of Trump’s pro-growth policies.

While Malaysia’s international reserves made some recovery earlier this year after plunging to $94.5 billion in 2015, they are still far below the May 2013 peak of $141.4 billion.

The central bank also asked banks to stop what it describes as “speculative and damaging” offshore trading in the ringgit in so-called non-deliverable forwards.

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