Malaysia: Ringgit falls to lowest level in over a decade
November 14, 2016
On 11 November, the ringgit traded in offshore markets dropped to its lowest level in in over a decade, following Donald Trump’s victory in the U.S. presidential elections. According to Thomson Reuters data, the ringgit’s one-month non-deliverable forwards lost 3.7% from the previous close to 4.54 MYR per USD, which was the weakest since September 2004. The sudden plunge was triggered by a large sell-off of emerging market government debt, as investors expect higher interest rates and reduced imports from Asia under Trump’s presidency. While Malaysia’s economic fundamentals remain solid—GDP accelerated to 4.3% in Q3—Trump’s proposed protectionist policies would affect investor sentiment in Asia’s export-led economies. Meanwhile, on the same day, the ringgit’s spot price settled at 4.29 MYR per USD, which weakened to a level last seen at the beginning of this year.
With the ringgit weakening, Malaysia’s Central Bank quickly intervened in the onshore market, making sure that the spot rate vis-à-vis the U.S. dollar remains stable. The Central Bank acknowledged the intervention and stated, on 11 November, that it will ensure that the markets do not price the ringgit out of sync with the economy’s underlying fundamentals, while also providing the necessary liquidity in the forex market.
Author: Luis Lopez Vivas, Economist