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.
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