Bank Negara tells lenders to prevent speculation as ringgit falls

(AsiaOne) – Bank Negara has told lenders to guard against speculation in the ringgit after the currency fell to the weakest level in almost five years.

All short-dated transactions requiring the exchange of ringgit for a foreign currency must be backed by underlying documentation, the central bank said in a “stern reminder” yesterday. Bank Negara confirmed the note.

The timing of the central bank’s notice could mean it was “uncomfortable with the pace of the ringgit’s weakness”, Bloomberg quoted Nizam Idris, Singapore-based head of foreign exchange and fixed-income strategy at Macquarie Group Ltd, as saying.

The ringgit dropped 1.9 per cent this month, the most among 11 Asian exchange rates tracked by Bloomberg. The currency weakened 2.5 per cent over Nov 28 and Dec 1, the biggest two-day decline in more than 16 years, and reached 3.4497 per dollar yesterday, the lowest since February 2010.

At 5pm, it traded at 3.4460 – more than a five-year low – versus the previous close of 3.4435, Bloomberg reported.

ING Groep NV and Credit Suisse Group AG pared forecasts for the currency this week, citing the damping effect of a slide in crude oil prices on the petroleum-exporting nation.

Malaysia will be the sole loser among Asia’s emerging markets from the decline in crude and the country may miss its 2015 fiscal deficit target, according to Bank of America Merrill Lynch.

A 10 per cent drop in prices will reduce economic growth by 0.2 percentage point, economists including Singapore-based Chua Hak Bin wrote in a Dec 1 report, according to Bloomberg.

Brent crude has dropped 39 per cent from a June high after the Organisation of Petroleum Exporting Countries’ decision last week to not cut production in order to shore up prices. The potential revenue loss may make it harder for Prime Minister Datuk Seri Najib Tun Razak to lower the fiscal deficit to 3 per cent of gross domestic product next year from 3.5 per cent.

A central bank official said the reminder was a standard procedure and that Bank Negara had sent out the notice in view of the present situation.

“This is not a new instruction,” the official said.