According to a report in the South China Morning Post, the ringgit is showing no signs of breaking its fall as 2016 ends.
The ringgit traded at 4.4798 to the US dollar on Tuesday afternoon, after falling to 4.4805 on Monday, its weakest point since January 1998.
The report quoted Song Seng Wun, an economist with CIMB Private Bank in Singapore as saying the “fair value” of the ringgit was likely between 3.90 to 4.00 per US dollar.
The report said some observers felt the slump raised the spectre of a repeat of the controversial capital controls imposed in 1998, but the government has said it will not re-introduce such measures.
The SCMP report quoted Stephen Innes, a Singapore-based senior trader at foreign exchange firm Oanda, as saying: “The ringgit, like other emerging market currencies, has been badly hit by the anti-globalisation fears brought on by Donald Trump’s election and the US Fed’s accelerated plans for interest rate hikes.
“The ringgit’s problems also lie with the fact that the 1MDB scandal has not left the headlines despite a lot of rhetoric otherwise, and this is agitating global investors.”
According to Song, “political risks” were exacerbating the ringgit’s slump.
The report noted that 1MDB was being investigated over money laundering allegations in various nations.
The global crude oil supply glut, which has caused a slump in prices, has also affected Malaysia which derives about 14% of its national revenue from energy exports.
The report noted that the currencies of Asian countries such as Malaysia, India, Indonesia and Thailand have seen depreciation after the US Federal Reserve this month signalled it planned to accelerate interest rate hikes in 2017.
Such a move, said the SCMP report, could induce investors to pull back their investments in these emerging markets in favour of higher returns in the US.
The situation, it reported, could worsen if US president-elect Donald Trump goes ahead with his plans for domestic big ticket infrastructure spending. This would trigger an uptick in US domestic inflation, further compelling the Feds to increase interest rates to control prices.
The report noted that Malaysia’s second finance minister Johari Abdul Ghani had told local media there was no need for panic as Malaysia had an ecosystem to make it right.