KUALA LUMPUR — The ringgit on Monday (Dec 19) fell to its lowest level against the United States dollar since the Asian financial crisis in 1998, as investors continued to sell down emerging market assets while a crackdown introduced last month on currency speculators exacerbated outflows from Malaysia.

The ringgit declined 0.1 per cent intraday to 4.4805 versus the greenback, a level not seen since January 1998, according to prices from local banks compiled by Bloomberg, before ending little changed at 4.4785 at the close of Kuala Lumpur trade. Against the Singapore dollar, the ringgit climbed 0.2 per cent to finish the day at 3.0982, compared to the all-time weakest rate of 3.1401 hit last month.

The current situation “is turbulence, not a crisis”, and the Malaysian currency will eventually recover to its fair value, Second Finance Minister Johari Abdul Ghani said on Monday.

The ringgit has lost more than 6 per cent since the US election on Nov 8, the biggest decline in emerging Asia, as expectations that incoming President Donald Trump will stoke inflation with his fiscal policies spurred outflows from the region. Sentiment towards Malaysian assets has also been hurt by the central bank’s move last month to clamp down on trading of non-deliverable forwards even as it provided greater onshore hedging flexibility with revised regulations.

“It is a confluence of the relative decline in cash metric, high foreign holdings of bonds sold off, investors’ trepidation about foreign exchange controls and the underlying political or headline risks,” said Mr Vishnu Varathan, a senior economist at Mizuho Bank in Singapore.

Tighter US monetary policy and concerns over Mr Trump’s policies towards trade and relations with China have reduced the appeal of riskier assets, with losses seen across Asia. The MSCI Emerging Markets Currency Index slid 0.8 per cent last week after the Federal Reserve signalled a steeper path for US interest rates next year. 

Bank Indonesia governor Agus Martowardojo said this week the central bank will stabilise the rupiah in line with the nation’s fundamentals amid tensions over China’s seizure of a US naval drone in the South China Sea.

While capital flight is unavoidable, foreign investors will return when things stabilise, Mr Johari said. Foreign funds halted a seven-week selling streak in Malaysian stocks, buying a net RM44 million (S$14.2 million) of shares last week, according to a research note by MIDF Amanah Investment. Outflows have slowed to RM2.5 billion this year, compared with RM19.5 billion in 2015, MIDF said.

Malaysia’s economy is “very robust” because of its strong economic policies and fiscal consolidation, World Bank country director for South-east Asia Ulrich Zachau said. Still, the ringgit may weaken to 4.52 per US dollar in the second quarter next year, before stabilising at 4.47 in 2018, according to the median estimates of analysts surveyed by Bloomberg.

“The US dollar-ringgit perhaps sums up the struggles many emerging economies with dollar pegs and currency controls will face in 2017 with higher US yields and a stronger dollar,” Mr Jeffrey Halley, senior market analyst at Oanda Corp in Singapore, wrote in a research note. 

“Expect this to become an important theme in 2017,” he warned.  BLOOMBERG