Malaysia: Ringgit fell to 17-year low

The ringgit’s exchange rate weakened to 3.91 against the USD, which is 17-year low, as the sell-off in the stock market intensified amid weakening growth prospects continuing to weigh down on investor sentiment.

A drop in the price of Brent crude oil, the benchmark for Malaysian petroleum products, back to below USD50 a barrel and falling prices of crude palm oil (CPO) to near RM2,000 a tonne added to the uncertainties.
The two commodities are the country’s major exports after electrical and electronic products.
Despite the weak ringgit, total exports declined 3.7% in the second quarter after having registered a 2.5% drop in the first quarter.
Analysts said weak external demand and a slowdown in domestic consumption was putting the brakes on economic growth.
Citi Research, a unit of Citigroup Global Markets Inc, yesterday projected Malaysia’s economic expansion may slow to 4% in the second quarter ended June 30 from the 5.6% achieved in the first quarter.
“With growth slowing, we also doubt Bank Negara will hike to defend the ringgit,” its economist Wei Zheng Kit said. Bank Negara kept its key overnight policy rate steady at 3.25% in July. The last interest rate hike was in July 2014.
The ringgit remained Asia’s worst-performing currency year-to-date, despite sharper declines by its regional counterparts over the past one month.
The ringgit’s 10.6% drop year-to-date has raised concerns that the currency has weakened too fast and too far. CIMB Research in a recent note predicted that it would take RM4 to buy one USD by the end of the year.
“There has been talk that Bank Negara is taking steps to reduce the volatility in the currency market,” said one currency dealer.
But the ringgit continued to face pressure amid a huge outflow of foreign funds from the stock market.
MIDF Research calculated that net foreign outflow so far this year had reached RM11.7bil. This adds to the RM6.9bil that had left the market last year.The pace and intensity of the sell-off by foreigners was reminiscent the country had experienced during the global financial crisis of 2008.
The drop in the price of crude oil “is not conducive for the ringgit and Malaysian equities,” the firm said. It was down 27% from a recent peak of USD67 a barrel in early May and about half the price compared with a year ago.
The Government had based its Budget 2015 assumption on the price of Brent at USD55 a barrel.
Citi Research said even if Brent stayed at USD50 a barrel, the full-year average oil price of USD54 a barrel would be close to the Budget assumption.
“With a continued current account surplus of 3%-3.5% of gross domestic product for 2015 as a whole, concerns over the impact of lower oil prices appear overblown,” Wei said.
/theSTAR 07-08-2015

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