Malaysian ringgit hits fresh 42-month low on sales

Malaysian ringgit hits fresh 42-month low on sales

KUALA LUMPUR (Reuter): The Malaysian ringgit extended its
freefall against the dollar yesterday, hitting a 42-month low on
sales from offshore investors, and most foreign exchange dealers
expect further losses.

At 0730 GMT, the ringgit was languishing at 2.7337/47 to the
dollar -- its weakest level in 42 months.

Though dealers generally feel the ringgit should find support
soon, some have not ruled out a slide to 2.80, a level last seen
in July 1991.

"It's difficult to say at this point where the ringgit is
heading, but I don't think we have seen the bottom yet," a dealer
with a Malaysian bank said.

"Obviously 2.80 is the next psychological level."

The currency has remained under selling pressure since
plunging two percent late on Friday shortly after Prime Minister
Mahathir Mohamad said he was happy with the ringgit's level,
dealers said.

They said Mahathir's remarks were taken to mean that the
central bank, Bank Negara Malaysia, would allow the ringgit to
find its own level and would not intervene to stop the local unit
from being sold.

"This was the last thing that the ringgit needed, given (that)
regional currency woes (were) still pretty much unresolved, thus
opening the way to more ringgit downside," research house
I.D.E.A. said in a Monday morning commentary.

A dealer with a European bank in Singapore said: "Buying
interest in dollar/Malay among offshore parties is still very
strong, especially U.S. funds and Hong Kong parties."

"I think offshore parties are still short ringgit and long
U.S. dollars, but it is the reverse onshore. Local commercials
have not fully hedged their dollar positions."

The ringgit, like other Southeast Asian currencies, has been
hit by speculative attacks over the past month, losing about nine
percent of its value.

The Bank Negara spent $2.0-3.0 billion of its reserves in June
to defend the currency.

Dealers said they were surprised by Mahathir's remarks,
following his stinging verbal attacks on speculators and the
introduction of capital control measures.

Bank Negara last week ordered local banks to limit non-trade
related currency swaps to $2.0 million with each overseas
customer, in an attempt to reduce foreigners access to the
ringgit.

Dealers and analysts said the ringgit was also pressured by a
weak Malaysian stock market and fears of possible overheating in
the economy.

Local shares continued to be battered by foreign selling, with
the benchmark Composite Index falling 2.84 percent to 905.87 at
the morning close on Monday.

Concern about the economy followed Malaysia's surprisingly
high loans and monetary growth figures for June, despite steps by
Bank Negara to curb them.

Bank Negara announced last Wednesday that broad money supply
or M3, grew by 21.9 percent year-on-year in June against 20.3
percent in May and 22.9 percent in the same month last year.

Loans growth in June rose to an annualized 30 percent from
29.5 percent at the end of May.