Malaysia lets ringgit fall below level that prompted dollar peg

Kuala Lumpur

FOR the past three weeks, the Malaysian authorities have allowed the ringgit to trade at below levels that in 1998 prompted them to impose a dollar peg and capital controls. Economists expect more downside, with the Federal Reserve set to raise US interest rates.

The ringgit has traded at around 3.81 to the US dollar since July 6, exceeding the 3.80 level of the peg set by the government between 1998 and 2005. Economists warn against intervention to shore up the ringgit, as Malaysia's international reserves have already dropped to near five-year lows of US$100.5 billion, data released by the central bank last week showed. While that is sufficient to fund 7.9 months of retained imports, it is just 1.1 times short-term external debt.