The currency — emerging Asia’s worst performer last year — may weaken briefly to RM5 against the dollar, before being propped up by the authorities, said State Street Global Advisors’ Ng Kheng Siang, who started his career as a portfolio manager at Bank Negara Malaysia (BNM) almost three decades ago.
If “there is a sudden temporary question mark or loss of confidence in the stability of politics in Malaysia, then you may see investor outflows,” Ng said in an interview in Singapore last week. “That is when the currency may start to get hit more.”
With the political shocks that ushered in four administrations since 2018 still fresh in investors’ minds, concerns over stability prevail following alleged attempts by opposition leaders to bring down Prime Minister Anwar Ibrahim’s government. Sputtering growth in China, Malaysia’s biggest trading partner, has also weighed on its exports and economy.
The ringgit slumped to almost RM4.80 per dollar in October, the weakest since the height of the Asian financial crisis in 1998.
It is a level that policy-makers are probably “watching very closely” and are set to defend, said Ng, who managed the fixed-income portfolios of BNM’s foreign reserves in the 1990s and “lived through” the Asian crisis.
Former Malaysian premier Dr Mahathir Mohamad introduced capital controls in September 1998 and pegged the currency at RM3.80 per dollar, a policy that stayed in place until 2005.
Without any political chaos, the ringgit will be slightly stronger than RM4.80 against the dollar, Ng said.
State Street is neutral on Malaysia’s fixed-income markets.
The Malaysian currency, which has weakened nearly 3% this year, was trading at 4.7275 against the dollar early today.
The central bank in Kuala Lumpur said the ringgit’s recent slide was mainly driven by external factors and not reflective of the domestic economic performance and prospects.
It will continue to “ensure sufficient liquidity to support the orderly functioning of the domestic foreign exchange market,” given the threat of bigger price swings in global markets.