The ringgit’s strength correlates with crude oil prices as the commodity forms a crucial component of the Malaysian economy.
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“In particular, there is a rumour circulating around that the Central Bank Governor could be stepping down soon and investors are concerned that Malaysia may reintroduce capital controls to stem the fall in ringgit, if there is a change of the Central Bank’s Governor”. The FTSE Bursa Malaysia KLCI Index of equities has dropped more than 10 percent from 2015’s high and the ringgit is at a 17-year low.
The ringgit has declined more than 25 percent over the past year and it weakened another 1.74 percent to 4.0805 to the U.S. dollar by late afternoon trading on Friday. The country supplies liquefied natural gas and palm oil. The ringgit was traded lower against a basket of major currencies except the Singapore dollar.
Global investors have been pulling money out of Malaysia, where Prime Minister Najib Razak is struggling to fend off allegations of corruption involving state investment firm 1Malaysia Development Berhad (1MDB).
RAM Ratings economist Kristina Fong, however, said the ringgit will not hit the RM4 value against the US dollar since the depreciation is driven by sentiments and the Malaysian economy foundation is still strong. That was the slowest pace since the third quarter of 2013.
MALAYSIA’s confidence-sapping crisis plunged to a new level on Wednesday with the ringgit smacked down to beyond the RM4/USD mark for the first time in 17 years and the KLCI equities benchmark tumbling to a 32-month low.
“Pegging the ringgit would mean that we will be reversing a few of the gains that we have reap over the years through the liberalisation”, he said.
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Despite the drop, the foreign exchange reserves as at end-July 2015 are still sufficient to finance 7.6 months of retained imports, albeit deteriorating from 8.4 months of retained imports in the same period a year ago explained RHB Research.
