A dark day for the ringgit

The recent weakness in the ringgit was partly due to the soft economic expansion.

KUALA LUMPUR: It was a double whammy day for the ringgit, with the currency falling to a new all-time low against two closely compared currencies – the US dollar and the Singapore dollar.

To calm the markets, Bank Negara had to issue a statement yesterday, pointing out that “most analysts are forecasting for the ringgit to appreciate this year”.

Second Finance Minister Datuk Seri Amir Hamzah Azizan, in his maiden interview with Bernama, however, refused to forecast the year-end target for the US dollar-ringgit exchange rate.

Nevertheless, he said the government’s efforts to bring in foreign direct investments would help to improve the ringgit’s performance.

The ringgit hit RM4.7987 against the US dollar yesterday, diving below the Asian financial crisis-low of RM4.7125 when the market closed on Jan 9, 1998 amid severe currency speculations in the region. The exchange rate hit an intraday high of RM4.8850 in the same month that year.

The ringgit also suffered another blow yesterday, as it spiralled to a fresh low against the Singapore dollar, closing at RM3.5682 to the Singapore dollar.

The positive trade data announced yesterday hardly helped to support the battered ringgit.

Malaysia’s exports in January rose 8.7% year-on-year to RM122.43bil, marking the first expansion in 11 months.

The recent weakness in the ringgit was partly due to the soft economic expansion reported last week, whereby annual gross domestic product growth for 2023 missed the official forecast.

The ringgit was also hammered by the fact that the Malaysian capital market recorded its second consecutive month of net foreign outflow, driven by a bigger sell-off in domestic bonds.

In a statement yesterday, Bank Negara governor Datuk Abdul Rasheed Ghaffour said the recent performance of the ringgit, like other regional currencies, are impacted by external factors such as market adjustments to shifting US interest rate expectations, geopolitical concerns and uncertainties surrounding China’s economic outlook.

“Bank Negara is of the view that the current level of the ringgit does not reflect the positive prospects of the Malaysian economy going forward.”

Reuters reported yesterday that emerging Asian currencies also weakened against the US dollar, while the Chinese yuan slid after China cut its benchmark mortgage rate by more than expected but found support from state bank buying.

The South Korean won and the Taiwanese dollar inched 0.2% and 0.4% lower, respectively.

“Negative rate differentials with the United States have translated into capital outflows and corporate hoarding of US dollars, exacerbating the downward pressure on the ringgit,” Nicholas Chia, macro strategist at Standard Chartered, said.

Meanwhile, the Chinese yuan was last flat at 7.199 per dollar, after touching its lowest level in three months earlier in the session.

Sources told Reuters that China’s major state-owned banks were seen selling dollars in an attempt to arrest weakness in the yuan in the wake of a deep cut to the benchmark mortgage rate.

China cut the five-year loan prime rate, the benchmark reference rate for mortgages, by 25 basis points (bps) to 3.95% at a monthly fixing, as authorities ramped up efforts to stimulate credit demand and revive the property market.

That was a deeper cut than the five-to-15-bps reduction market watchers polled by Reuters had expected and was also the largest cut since the reference rate was introduced in 2019.

Shanghai stocks closed 0.4% higher. They had fallen as much as 0.8% earlier in the session.

Equities in Kuala Lumpur rose 0.9% to their highest level since early-June 2022, and stocks in Manila rose 0.8%.

Stocks in Seoul dropped 0.8%, as investors booked profits after a recent rally.

Thailand’s stock market fell 0.6% and the baht weakened as much as 0.6% to its lowest level since Nov 1, 2023.

Data on Monday showed Thailand’s economy unexpectedly contracted in the fourth quarter of 2023.

Prime Minister Srettha Thavisin said the economy was in a critical stage and again urged the central bank to cut interest rates without waiting for a scheduled meeting.

Srettha, also the finance minister, has been at loggerheads with the Bank of Thailand (BoT) over its monetary policy path.

“Given the very weak economic data yesterday, the BoT is under heavy pressure from various fronts to ease rates and we would not rule out the risk that they may have to start an easing cycle with multiple cuts ahead of the Federal Reserve,” analysts at Maybank wrote.

The BoT’s next meeting is scheduled for April 10.

In Indonesia, the rupiah inched 0.2% lower while stocks were up 0.6% ahead of Bank Indonesia’s (BI) rate decision today.

Economists in a Reuters poll expect BI to keep its key policy rate unchanged on the back of subdued inflation and an improving currency outlook and see the first rate cut in the next quarter. — Agencies

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