Malaysia seeks to nix ’98 parallel as it herds bears
MALAYSIA’S attempt to cajole currency traders to stop selling down its plunging ringgit is evoking memories of 1998 capital controls among global banks — a comparison policy makers were quick to discourage.
RBC Capital Markets and Brown Brothers Harriman said investors were reminded of the Asian financial crisis 18 years ago, after Bank Negara warned foreign banks this month against using offshore forwards to bet against the currency and vowed to limit speculation. While the central bank said Friday it was stepping in to “maintain orderliness” following a 5% tumble over the past month, Assistant Governor Adnan Zaylani said it wasn’t considering tightening controls on the flow of funds across its borders.
“The motivation to try and reduce speculation is a reasonable one from a central bank perspective,” said Sue Trinh, head of Asia foreign-exchange strategy at RBC Capital Markets in Hong Kong. “But there are always unintended consequences. Moving the goal posts suddenly and at a whim has destroyed liquidity and foreign investor confidence.”
The ringgit tumbled for nine straight days through Monday, sinking to 4.4277 per dollar, the weakest level since Jan. 7. Onemonth non-deliverable forwards ( NDF), which fix a rate for exchanging the ringgit in the future but are settled in dollars, plunged 6.3% in the period and touched an unprecedented 4.5848 on Nov. 11, the widest discount to the spot rate on record.
The latest slump seems more urgent than the currency’s slide through to the middle of 2015. While that move helped slow economic growth and made consumers less likely to spend, only the past month’s decline spurred the central bank to expressly say it was intervening.
The central bank has rarely disclosed any episodes of intervention.