Ringgit set to drop further as UK exits the EU

Brexit-RinggitKUALA LUMPUR: The ringgit is headed for its worst slump since the Asian Financial Crisis as results from the United Kingdom’s referendum show it leaning towards leaving the European Union, spurring a flight to haven assets.

The ringgit fell 2.5 per cent to 4.1207 per dollar as of 12.36 pm in Kuala Lumpur, and is set for the biggest loss since June 1998, prices from local banks compiled by Bloomberg show. It earlier rose to a seven-week high of 3.9893.

The Bloomberg report said the pound tumbled more than 10 per cent and a gauge of the dollar soared as results showed almost 52 per cent of voters favoured leaving the trading bloc while 48 per cent wanted to stay.

The uncertainty in the lead up to the UK ballot has contributed to volatility in Asia’s worst performing currency this quarter, with political scandals involving Prime Minister Najib Razak and a state-backed fund’s default on a bond payment undermining confidence in the ringgit.

“An unexpected turn of events with Brexit becoming a reality is driving the market into risk-off mode,” Bloomberg quoted Winson Phoon, a fixed-income analyst at Maybank Investment Bank Bhd in Kuala Lumpur as saying. “The weakness can last for more than a knee-jerk moment and I expect the bond market to eventually succumb, with the 10-year government bond yield potentially grabbing the 4 per cent handle.”

The 10-year government bond yield rose four basis points to 3.93 per cent, while the five-year yield surged eight basis points to 3.52 per cent, stock exchange prices show. The FTSE Bursa Malaysia KLCI Index dropped 1.4 per cent, said the report.

Bank Negara said in a statement yesterday: “Bank Negara Malaysia, together with the Malaysian financial market participants, are monitoring and will remain vigilant to any potential emerging risks and challenges to the domestic financial markets.”

It added that liquidity in the domestic market remained “ample” and the country’s financial markets were “well positioned to face any major volatility.”