Malaysia’s crackdown on currency speculators has both successfully reduced the volatility of the ringgit, it looked like it has also discouraged some foreign investors.
According to Macquarie Bank Ltd., the steps taken by the central bank to restrain trading in offshore non-deliverable forwards last year has made it harder for global funds to hedge their exposure to Malaysia. Data from the central bank show Global funds cut holdings of Malaysian debt by a combined 25.2 billion ringgit, or $5.7 billion, in November in December.
What compelled the central bank to crack down on NDF trading was when the difference between onshore and forward prices for the ringgit spiked to a record in November. The volatility of the currency has reduced to its lowest in four years ever since.
“The initial imposition of the NDF restrictions did lead to talk of the potential of further restrictions and even capital account closure,” said senior market strategist at National Australia Bank in Singapore, Julian Wee. “These sorts of measures tend to lead to a loss of confidence in the market, which was already jittery. However, the overall direction and movement in the dollar-ringgit has been due to the overall dollar trend in addition to BNM’s inability to resist it.”
The ringgit became the Asia’s worst performer after the yen, falling nearly 2 percent since midway November at 4.50002 per dollar on January 5. As of 12:12 p.m. in Kuala Lumpur, the ringgit was trading at 4.4370 per dollar.
Some are still optimistic. With oil-related products being the second-largest Malaysian export, United Overseas Bank Ltd. predicts that the ringgit will be at 4.35 per dollar around late June as it regains a positive correlation with crude oil.