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Malaysia warns against ringgit speculation as short positions mount

KUALA LUMPUR — Malaysia’s central bank has warned the country’s lenders to guard against speculation in the ringgit as short positions in the currency climbed to the most in five years amid the oil price plunge.

Short positions in the ringgit reached their largest since the 2008 financial crisis. Photo: Bloomberg

Short positions in the ringgit reached their largest since the 2008 financial crisis. Photo: Bloomberg

KUALA LUMPUR — Malaysia’s central bank has warned the country’s lenders to guard against speculation in the ringgit as short positions in the currency climbed to the most in five years amid the oil price plunge.

All short-dated transactions requiring the exchange of ringgit for a foreign currency must be backed by underlying documentation, Bank Negara Malaysia said in a “stern reminder” to financial institutions yesterday.

The ringgit weakened 2.5 per cent against the United States dollar from Nov 28 to Dec 1, its biggest two-day decline since the 1997-98 Asian financial crisis.

It fell 0.2 per cent to RM3.4497 per US dollar in Kuala Lumpur yesterday, the weakest since February 2010, before recovering slightly to RM3.4480.

Against the Singapore dollar, it was little changed at RM2.6240, close to the ten-month low on Monday.

Short positions in the ringgit reached their largest since the 2008-09 global financial crisis as investor sentiment towards the currency remained pessimistic, a Reuters poll of analysts and traders found yesterday. Short sellers are those who sell the currency in the hope of buying it back at a lower price and booking the difference as profit.

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

Malaysia will be the sole loser among Asia’s emerging markets from the decline in crude oil prices and the potential revenue loss will make it harder for Prime Minister Najib Razak to lower the fiscal deficit to 3 per cent of gross domestic product next year from 3.5 per cent.

Oil-related industries account for a third of Malaysian state revenue and each 10 per cent decline in crude prices will worsen the nation’s fiscal shortfall by about 0.2 per cent of gross domestic product, said Bank of America Merrill Lynch economist Chua Hak Bin. Malaysia is already seeing deterioration in its terms of trade: The current account surplus narrowed to RM7.6 billion in the third quarter, the smallest gap since June last year.

The price of benchmark Brent crude has dropped about 40 per cent from a June high, with losses exacerbated after the Organization of the Petroleum Exporting Countries (OPEC) last week decided not to cut production. Brent hit a five-year low below US$68 (S$89) a barrel on Monday after averaging around US$110 a barrel in the last three years.

“We are still coming to grips with OPEC’s decision to let the market decide what prices will do. The big moves aren’t all behind us. The market will continue to move on this for a long time,” said Mr Mike Wittner, head of oil research at Societe Generale.

With oil prices under siege and the US Federal Reserve poised to start raising interest rates next year, the ringgit is expected to fall further. Hong Leong Investment Bank analysts expect the next resistance levels at RM3.52 and RM3.60, if the currency breaches the RM3.45 mark, the New Straits Times reported. AGENCIES

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