KUALA LUMPUR, Aug 18 — The political intrigue surrounding Malaysia’s administration is playing a key role in the sharp decline of the ringgit, according to regional banking experts.
Although monetary policy decisions in the US and China as well as crashing commodity values played their role in the devaluation of the Malaysian currency, analysts noted that drop in the ringgit, the local stock market’s decline, and foreign capital exodus were exacerbated by unease over the “unresolved politics” linked to 1Malaysia Development Berhad (1MDB).
“People can’t see when it’s going to end. There’s no time-frame,” Singapore’s Business Times reported, citing an executive from an international bank.
The sentiment echoes Prime Minister Datuk Seri Najib Razak’s own assessment last week, when he said political machinations was among the factors behind the decline in the ringgit.
Since last year, the ringgit has lost over a fifth of its value against the US dollar, now hovering around RM4.10 to the greenback and below the RM3.80 peg that was imposed during the 1997 Asian Financial Crisis.
Although the sharp drop was not unique and has been observed in other commodities-driven countries including Indonesia and Australia, Malaysia’s situation was made unique by claims of a conspiracy to topple Najib as the prime minister by allegedly “criminalising” him through links to 1MDB.
Allegations over US$700 million (RM2.6 billion) purportedly from 1MDB that was deposited in Najib’s personal accounts, but which was later said to be a donation from the Middle East, has also sparked a new controversy over political funding.
This was aggravated by perceived action against investigators probing allegations into the state-owned firm, including the dissolution of a special multi-agency taskforce following the sudden removal of the country’s Attorney-General last month.
Investors, particularly foreigners, have begun to shift their funds to less volatile locations, to such extent that speculation of fresh currency and capital curbs have arisen, although Bank Negara Malaysia has insisted that these will not occur.
According to RHB Research Institute executive director Lim Chee Sing, the ringgit’s decline was heavier than most as the negative news in Malaysia was being priced in.
But Lim also warned against expecting the Malaysian central bank to renege on its pledge not to lock down the local bourse and currency.
“Traders can bet heavily against the ringgit (and stock market) but they could be caught when it rebounds,” he was quoted as saying in the Business Times article.
