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Singdollar off record high against ringgit as Bank Negara holds key rate

KUALA LUMPUR — Malaysia’s central bank kept its benchmark interest rate unchanged for a third straight meeting to help bolster the currency as policymakers in emerging economies gird themselves for tighter US monetary policy.

Reuters file photo

Reuters file photo

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KUALA LUMPUR — The Singapore dollar on Thursday (Jan 19) eased off its record high against the ringgit, after Bank Negara kept its benchmark interest rate unchanged for a third straight meeting to help bolster the Malaysian currency.

The Singapore dollar ended the Asian session down 0.2 per cent at 3.1198 ringgit, after having touched an all-time high of 3.1474 in intraday trading on Wednesday, showed Bloomberg data. Against the US dollar, the ringgit was flat at 4.4470.

Policymakers in emerging economies are girding themselves for tighter United States monetary policy. Malaysia’s central bank on Thursday held its key rate at 3 per cent in the face of a fragile ringgit and uncertainty around policies under Mr Donald Trump, who will take office today as the 45th US President. Investors worry that a destabilising fall in the ringgit could hit the Malaysian economy just when it has started to pull ahead after slowing for the past couple of years. That anxiety has been fed by a recent flight of capital out of Malaysia and other emerging markets on bets that a Trump administration will boost fiscal spending and accelerate US interest rate increases.

The ringgit has depreciated about 6 per cent against the US dollar since Mr Trump’s surprise election victory — the worst hit among emerging Asian markets — prompting Bank 
Negara to take steps to restrict offshore ringgit trading to curb the slide. 

That, however, could not prevent its international reserves from shrinking by about US$4 billion (S$5.7 billion), from US$98.3 billion in Nov 15 to US$94.6 billion as of Dec 30.

Bank Negara said on Thursday that the ringgit has seen a reduction in volatility since the sharp adjustments experienced towards the end of last year. While the trading curbs have helped provide stability in the ringgit, “uncertainties in the global economy, the policy environment and geopolitical developments may, however, result in bouts of volatility in the regional 
financial and foreign exchange markets”, warned the central bank. 

“While the risks of destabilising financial imbalances are contained, the monetary policy committee will monitor these risks to ensure the sustainability of the overall growth prospects,” it added.

With more US rate increases to come — Fed policymakers have signalled three rate rises this year — the door to further policy easing across Asia may have closed.

“Given the pressure on our emerging market currencies, (and as) potentially higher US yields pressure the interest-rate differential between the US and Malaysia, all these would give Bank Negara less room to ease interest rates at this point. 

“I don’t see a lot of pressure on Bank Negara to cut,” said Ms Julia Goh, a United Overseas Bank economist in Kuala Lumpur. Malaysia’s economy has been hobbled over the past two years by slumping oil and gas prices, slowing demand from top trading partner China, and a financial and political scandal at state fund 1Malaysia Development Berhad.

This year, the Malaysian economy is projected by the government to grow 4 to 5 per cent, while inflation is forecast to average between 2 and 3 per cent. The central bank said inflation will probably be higher this year than the 2.1 per cent reached last year, adding that the economy remains on track to expand as projected. AGENCIES

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