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Weak reserves spur ringgit's biggest quarterly loss since 1997

Malaysian ringgit banknotes of various denominations are arranged for a photograph in Tokyo, Japan, on Friday, on Aug 14, 2015.

[KUALA LUMPUR] Malaysia's ringgit fell, headed for its biggest quarterly loss since 1997, as the relatively low level of import cover afforded by the nation's foreign-exchange reserves makes the currency more vulnerable to an emerging markets selloff.

The country's reserves have declined the most among Southeast Asia's five biggest economies in 2015 and Moody's Investors Service said in August that while they are sufficient, their adequacy is the weakest in the region. The holdings recovered for a second straight fortnight in the first two weeks of September, suggesting the central bank scaled back its intervention. The currency slumped to a new 17-year low on Tuesday.

The ringgit's drop was due to "the usual concerns around emerging-market growth and the weakness in equity markets," said Khoon Goh, a Singapore-based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. "Although there is already a lot of negative news priced into the ringgit, the fact that Malaysia has the lowest reserve adequacy in the region means the currency is more vulnerable during times of market volatility." The currency fell for a sixth day and was down 0.9 per cent at 4.4650 a dollar as of 10:01 am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It earlier dropped to 4.4690, the weakest level since January 1998, and has plunged almost 16 per cent since June 30.

The ringgit has lost more than any other Asian currency this quarter as a slump in Brent crude weighs on earnings for the region's only major net oil exporter, just as a looming US interest-rate increase spurs outflows from emerging markets. China's deepening economic slowdown, a political scandal involving Prime Minister Najib Razak and rising debt at state investment company 1Malaysia Development Bhd have compounded the losses.

Malaysia's foreign-exchange reserves rose 0.6 per cent to US$95.3 billion in the two weeks to Sept 15 but are still 18 per cent lower than at the end of last year. They declined to a six-year low of US$94.5 billion in early August.