Ringgit weakens most in Asia as psychological reserves mark eyed

[KUALA LUMPUR] The ringgit weakened the most in Asia on concern Malaysia's foreign-exchange reserves dropped to the lowest level since the 2008 global credit crunch, reducing ammunition to defend the region's worst-performing currency.

The holdings declined 13 per cent this year to US$100.5 billion amid a 10 per cent plunge in the ringgit, fueling speculation Bank Negara Malaysia intervened by buying the currency. A slump in oil, a political scandal involving Prime Minister Najib Razak and the prospect of higher US interest rates have sent the ringgit to a 17-year low. Figures for the two weeks to July 31 are due on Friday.

"The market is probably getting nervous because reserves are expected to fall below the psychological US$100 billion mark given that Bank Negara is seen to be intervening to smooth out volatility in recent sessions," said Nizam Idris, the Singapore-based head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. The second-most accurate forecaster for the ringgit in the four quarters through June in Bloomberg rankings predicts they may come in at US$96.5 billion.

The currency declined 0.3 per cent at 3.8905 a dollar as of 12:13 pm in Kuala Lumpur, prices from local banks compiled by Bloomberg show. It earlier fell as much as 0.5 per cent to 3.8948, the lowest since September 1998 when it reached 3.9340.

The US$100.5 billion is enough to finance 7.9 months of retained imports and is 1.1 times short-term external debt, according to a central bank statement issued when the figure was released on July 23.

Global investors have sold a net 11.7 billion ringgit (S$4.15 billion) of Malaysian shares this year through July, the biggest outflows since 2008, according to a report from MIDF Amanah Investment Bank Bhd. The FTSE Bursa Malaysia KLCI Index has proved quite resilient to the selling, and is down 2.9 per cent this year, compared with losses for benchmarks in Taiwan and Indonesia of 9.6 per cent and 7.3 per cent, respectively.

Malaysia's 10-year government bonds declined, with the yield rising two basis points to 4.09 per cent, according to Bursa Malaysia prices. That's the highest level since July 8. The five-year yield climbed one basis point to 3.70 per cent.

BLOOMBERG