SE Asian currencies plunge in dramatic slide
SE Asian currencies plunge in dramatic slide
SINGAPORE (Reuter): There was carnage on Southeast Asian
currency markets yesterday amid scenes not witnessed since the
Thai baht's shock flotation in early July.
In a dramatic slide early in the day the Malaysian ringgit
plunged over 4 percent in less than two hours and at one point
was losing one sen (cent) a minute.
"The ringgit was really hammered this morning with no
resistance seen at all," said a senior dealer with a large
Malaysian bank. "This is a once-in-a-lifetime move. I don't think
you will get to see another such move again."
The ringgit was at a late 3.3550 per dollar after hitting
3.4080 in early business. This is its lowest level against the
dollar since it was floated in 1973 and compared with a previous
close of 3.1930.
The rot set in at an early stage but Malaysian Prime Minister
Mahathir Mohamad again gave the ringgit a helping hand downwards
by repeating his siren call for tighter regulation or a total ban
on currency trading.
"The activities of currency traders deny freedom to others,"
Mahathir told a trade conference in Chile. "We therefore need to
regulate or outlaw currency trading, so free trade can flourish."
Such comments continue to hurt the ringgit because they are
hitting confidence, analysts said.
The greater risk premium being attached to Malaysia is due to
the fear of putting money, or indeed leaving money, in a country
where regulatory requirements may be changed at a moment's
notice.
Fund managers are clearly not willing to invest in a country
where the regulatory door might be slammed in their face.
"Mahathir's statements didn't help the situation. But
sentiment was already very nervous," said a U.S. bank dealer in
Singapore. Early rumors of a possible debt default by a major
Indonesian company had spooked the market initially, he added.
The ringgit's slide again had a knock-on effect elsewhere and
other regional currencies also caught a cold.
The Indonesian rupiah fell to a historic low around 3,445.00
per dollar before recovering slightly in late business to
3,370.00 compared with 3,220 on Tuesday.
Dealers said the rupiah's drop was exacerbated by genuine
demand for dollars from local companies finding themselves
massively underhedged in the face of the rupiah's depreciation.
Analysts are saying the current mayhem is due to the Asian
currency crisis entering the second phase. The falls have now
become so great that they are causing a shift in the structural
macroeconomic backdrop which, in turn, currencies must take
account of.
"It's a viscous circle now," said one analyst who preferred
not to be identified. "Inflation, debt, property markets, stock
markets are all now looking even worse the further these
currencies fall, so they keep falling."
Traders and analysts said the selling will, of course, grind
to a halt at some stage but the most bearish were talking about
the possibility of dollar/ringgit at 4.0 and dollar/rupiah at
4,000 in the near future.
The Thai baht also shed its recent poise in the face of the
regional turmoil, but its falls were limited as the market was
already long of dollars and preferred to wait for an impending
government cabinet reshuffle.
The baht was at 36.45 to the dollar onshore against 36.30 late
on Tuesday with the offshore rate at 36.00 against 35.75.
Central Bank intervention helped the Philippine peso recover
slightly in late business but earlier it hit a new historic low
of 35.61 per dollar.
In late trading it was at 34.65 against Tuesday's 34.32 close.
Prime Minister Mahathir's outbursts are clearly causing some
anguish among Malaysia's neighbors.
Bankers Association of the Philippines Deogracias Vistan
described the peso fall "excessive."
"He has not made life any easier for the Philippine economy
because even though we don't like to ride with the ringgit, it
seems that we are forced to," he said.
"This regional currency turmoil is getting far more
difficult...I just wish the Prime Minister would not say those
things anymore."