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SINGAPORE – The Malaysian ringgit has fallen to its lowest level since the 1997-1998 Asian financial crisis, with the currency weighed by the US dollar’s rise and a widening rate differential with the United States.
The currency dropped by 0.3 per cent from Wednesday to 4.7607 per US dollar, the weakest since 1998. It is the worst performer in Asia in 2023 after the yen, having dropped by more than 8 per cent against the greenback.
Against the Singapore dollar, the ringgit was relatively unchanged from Wednesday, trading at 3.4679 as at 10.27am. To date this year, the ringgit has weakened by more than 5 per cent versus the Singdollar, its slide limited by the Singapore currency’s own weakening.
The latest bout of losses comes as the US dollar gains on haven demand amid concerns over the Israel-Hamas war. Malaysia also posted six straight months to August of decline in exports, partly due to a slowdown in China, its largest trading partner.
Bank Negara Malaysia’s decision to pause interest rate hikes since July is also adding headwinds for the currency as global central banks sound hawkish. This has put the local overnight policy rate at a record discount relative to the upper bound of the US Federal Reserve funds rate.
Ringgit underperformance has been due to “real rate spreads that could turn a lot more unfavourable, especially as the (Malaysian) subsidy roll-back hits inflation and reveals softer real policy rates”, said Mr Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.
Policymakers face a trade-off between economic headwinds from higher rates and the risk of not responding and endangering macro and ringgit stability, he said. BLOOMBERG
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