SINGAPORE — The ringgit yesterday plummeted to a new all-time low of 2.9736 per Singapore dollar, flirting closer to the 3.00 level, with analysts saying the weakness is likely to persist, after official data showed Malaysia’s foreign exchange reserves continuing to fall, leaving the central bank with less ammunition to defend the currency.
At the end of Kuala Lumpur trade yesterday, the ringgit recovered partially to close down 0.9 per cent at 2.9619 versus the Singapore dollar, and down 1 per cent at 4.1685 against the United States dollar, Bloomberg data showed. Hit by a political crisis centring on Prime Minister Najib Razak, falling prices of oil and other commodities amid weak Chinese demand, as well as capital flight in anticipation of an interest rate hike in the US, the ringgit has slumped nearly 19 per cent this year versus the US dollar and 11.9 per cent versus the Singapore dollar.
While the falling ringgit hurts Singapore businesses in Malaysia and exporters shipping their goods northwards, it is a boon for Singapore travellers and shoppers hunting for bargains across the Causeway.
“Weak sentiment continues to plague the ringgit. The central bank will likely moderate the pace of its intervention, while balancing the need to rebuild reserves,” said Singapore-based analyst Pan Jingyi at research firm Forecast.
Malaysia’s foreign exchange reserves fell deeper below US$100 billion (S$140 billion), Bank Negara data showed yesterday, after they dropped below the threshold last month for the first time since 2010. Holdings fell 2.3 per cent to a six-year low of US$94.5 billion in the first 14 days of this month from two weeks earlier.
The reserves have dropped 19 per cent this year to their lowest level since September 2009. The holdings are sufficient to finance 7.5 months of retained imports, the central bank said in its statement accompanying the data.
Mr Khoon Goh, a senior FX strategist at ANZ Banking Group in Singapore, said Malaysia has the lowest import cover ratio in the region, warning that this is a source of vulnerability.
“If you have a big war chest, the market knows you have the ability to step in, so they are more cautious. In the case of Malaysia, the markets know the intervention capability is limited,” he said.
Mr Andy Ji, an Asian currency strategist for Commonwealth Bank of Australia in Singapore, said Malaysia’s reserves are adequate to satisfy redemption needs, but added that the country may have to impose some form of foreign exchange control later.
On Thursday, Mr Najib and Bank Negara governor Zeti Akhtar Aziz said Malaysia would not impose capital controls or return to pegging the ringgit against the US dollar.
“There’s no intention of moving to a less flexible regime like a pegged exchange rate regime,” Ms Zeti said. Malaysia last pegged the ringgit at 3.8 per US dollar in 1998, and that remained until 2005.
“We have high levels of reserves, and that is what reserves are for — to represent buffers during this period. We have held more than the amount of reserves our country needs,” she said.
Saying that the country’s fundamentals remain strong, she added: “We have to be patient and have the resilience to ride out this period of uncertainty.”