Is a top five hit last year for American rapper Lunchmoney Lewis.
Oil prices are surging, so why is the value of Ringgit, not readjusting. Before BERNAMA can sabotage the Government of the day, with their idiotic response, here are some of the reasons why .
1.) Why is the ringgit the biggest loser within Asian emerging markets?
This is due to the high foreign ownership of Malaysia’s government bond market, which leaves the Southeast Asian country extremely vulnerable to capital outflows. According to a Reuters report, foreigners owned more than 40 per cent of Malaysia’s government debt, the highest percentage in Asia.
“We estimate that at least US$55 billion worth of Malaysian bonds are held by foreigners or non-residents. Whenever there is a global rotation of funds, there will always be more pressure on countries like Malaysia,” explained Mr Nizam Idris, head of forex strategy at Macquarie Bank.
2). How long will this ringgit rout last?
“It’s very telling that the ringgit has underperformed the rupiah and even the won, given the domestic difficulties in South Korea now. I think that shows quite clearly that underlying confidence in Malaysia’s fundamentals is not strong,” said NAB’s Mr Wee.
The recent targeting of NDF trading may exacerbate these concerns, he added.
Mr Paul Mackel, head of emerging-market foreign exchange research at HSBC, said he has to “turn negative on the ringgit now” and expects the dollar-ringgit pair to tick up in the coming months, likely breaching the 4.48 peak set last September.
“We expect MYR depreciation pressures could intensify around BNM bills and MGS (Malaysian Government Securities) bond redemptions, for example, during February, March and June in the first half of 2017,” Mr Mackel wrote in a note dated Dec 1
3) So what options does the central bank have?
The most prudent option is to let the ringgit continue to move according to market forces.
“At this juncture, aggressive deployment of foreign exchange reserves (already perceived by some as relatively low) to smooth MYR depreciation may potentially backfire and undermine confidence, especially among residents,” noted HSBC’s Mr Mackel.
In that case, will more extreme forms of capital controls such as a fixed currency regime be revived?
Macquarie’s Mr Nizam ruled it out as an immediate risk if “the lesson (from the targeting of NDF market) is taken on board”.
“When you scrutinise and control cross border movement of money, that is a shade of capital controls and what they've done in recent time has shaken up investor confidence again,” he said.
Mr Wee from NAB agreed, noting that it could incur a “counter-productive effect”. “It’s not something you want to count on because it reduces confidence quite dramatically and to depeg the currency may take some time.
"The last time they did it, it took them seven years before they managed to do so and they were lucky then because Asia was on the rise; inflows entered the country once they depegged,” he said.
