THE Malaysian ringgit fell to its lowest level since the Asian Financial Crisis as the currency was weighed by the US dollar’s rise and a widening rate differential with the US.

The currency dropped by 0.3 per cent to 4.7635 per US dollar, the weakest since 1998. It’s the worst performer in Asia this year after the yen.

The latest bout of losses come as the US dollar gains on haven demand amid concerns over the Israel-Hamas war. The South-east Asian country also posted six straight months of decline in exports through August, partly due to a slowdown in China, its largest trading partner. September export figures are due at noon local time on Thursday (Oct 19).

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. That’s put the local overnight policy rate at a record discount relative to the upper bound of the Fed fund rate.

Ringgit underperformance has been due to “real rate spreads that could turn a lot more unfavourable, especially as the subsidy rollback hits inflation and reveals softer real policy rates”, said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. Policymakers face a trade off between economic headwinds from higher rates or the risk of not responding and endangering macro and ringgit stability, he added. BLOOMBERG