Ringgit may come under new speculative attacks

Ringgit may come under new speculative attacks

SINGAPORE (AFP): The Malaysian ringgit is expected to be in
the frontline of speculative attacks on Southeast Asian
currencies this week as the weary Bank Negara keeps close watch.

The ringgit plunged to a 39-month low of 2.6830 against the
U.S. dollar in late trading on Friday.

Foreign exchange dealers and analysts said funds seem
confident the U.S. dollar could move up against the ringgit,
which has dipped quite sharply since the July 2 Thai baht float
put regional units under pressure.

A dealer with an American finance house said funds in London
on Friday had bought U.S. dollars for ringgit in the forward
market, a traditional tactic before attacking a currency in the
spot market.

Analysts said the ringgit, which has shed 5.8 percent of its
value against the greenback since July 1, looked the most
vulnerable.

Desmond Supple, head of Asian currencies research at Barclays
(BZW), said Thailand remained a catalyst for currency movements
elsewhere and that there should be continued stability on the
baht in the short term following Bangkok's approval of a massive
global financial package to rescue the Thai economy.

"This will give some support to the other regional
currencies," he said.

"The one concern however is Malaysia, where the blow to
confidence delivered by the recent capital restrictions could
persist and engender fresh ringgit weakness," Supple said.

Malaysia had ordered domestic banks not to lend more than US$2
million in ringgit through the swap market to any offshore
counterparty in a bid to cut off the supply of ringgit for
offshore investors to sell short.

Short sellers -- those who sell borrowed currency to buy it
back later at lower prices -- have been widely blamed for the
recent erosion of regional currencies.

Malaysia's central Bank Negara on Friday stepped in after
weeks of absence to limit the rise of the greenback at the 2.6515
ringgit level even after Prime Minister Mahathir Mohamad declared
the same day that Kuala Lumpur would not intervene in the market.

Some have questioned what they term as inconsistency in
Malaysia's monetary policy during the present currency turmoil.

"I don't think there is any inconsistency between the prime
minister's remark and Bank Negara's intervention if it did indeed
occur," said Andy Tan, general manager of research house Standard
and Poor's MMS in Singapore.

"I think there is still a need for central banks to intervene
to smooth out excessive volatility," Tan said.

Bank Negara was reported to have poured immense resources to
shore up the ringgit. In the fortnight to July 15, the country's
foreign exchange reserves fell by 8.8 billion ringgit (about $3.4
billion), or 12.5 percent, to 61.9 billion ringgit.

The rupiah, which had dipped 6.8 percent against the U.S.
dollar since July 1, has also come under market focus as Bank
Indonesia moved last week to impose a tight monetary policy aimed
at shoring up the currency.

This led to high interest rates that took a toll on stock
prices and threaten to eat into companies' earnings.

Indonesia pursued the tough policy after it apparently failed
to stem the fall of the rupiah despite spending about $1 billion
from its war chest, sources said.

"The perception that Bank Indonesia will loosen monetary
policy coupled with market rumors about some potential bank
failures and a further widening of the daily rupiah trading band
are weighing on rupiah sentiment," said Tan of Standard and
Poor's MMS.

IMF -- Page 5

Defense -- Page 10

Rupiah -- Page 12