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."