Early this morning the Malaysian currency, ringgit, plunged to 17 year low. Its lowest since the 1998 Asian financial crisis. The currency fell as much as 2.8 percent at a 4.127 exchange rate to the U.S dollar, this marks the lowest level since the Asian recession. The embattled nation that has been struggling for months is facing an economic downturn after several investors flee the nation’s assets amid controversy over finances and slow economic growth.
Currency analysts said China’s sudden devaluation of the yuan pressured the currency even more. The ringgit is the worst-performing Asian currency in 12 months. According to Chua Hak Bin, an economist working with Bank of America Merrill Lynch, “Malaysia’s vulnerability is heightened by deteriorating terms of trade, higher debt and fragile fiscal position highly dependent on oil-related revenue”.
Most of the issues emanated from lack of confidence in the market, “political uncertainty and 1MDB are also hurting consumer and business confidence” Hak Bin added. According to Bloomberg, Global Fund pulled around $3 billion from the country stock market this year alone.
The country is one of the most economically viable nations in the region but recently it has been saddled by numerous issues ranging from drops in global oil prices as it accounted for one-third of government revenue to domestic political issues.
Although, the data released yesterday shows better than expected performance in the second-quarter growth was still the lowest in 24 months when compared to past releases. “The sharp fall in prices for Malaysia’s energy exports over the past year will put downward pressure on GDP growth, as lower prices hit government revenues and investment in the energy sector,” Capital Economics noted.
Analysts at HSBC believed Bank Negara Malaysia (BNM) seems to have intentionally refused to prevent ringgit weakness to allow flexibility in the exchange rate and eventually help boost exports. This might be the beginning of currency war as we move forward, countries adjusting exchange rates to accommodate exports in order to enhance economic growth while boosting manufacturing and the overall industrial sector.