Malaysia’s crackdown on currency speculators threatens to discourage overseas investors, says Macquarie Bank.
While agreeing that the tightening measures have reduced ringgit volatility, it said Bank Negara Malaysia’s (BNM) steps to curb trading in offshore non-deliverable forwards (NDF) last year made it harder for global funds to hedge their exposure to Malaysia.
According to BNM data, global funds cut holdings of Malaysian debt by a combined RM25.2 billion (US$5.7 billion) in November and December, the biggest two months of outflows since 2008.
BNM cracked down on NDF trading due to the difference between onshore and forward prices for the ringgit which jumped to a record in November last year.
Since then, the ringgit slid to the weakest since 1998, even as oil prices stabilised, but the central bank dismissed speculation it was about to impose capital controls.
Malaysia’s economy is undergoing a turbulent period due to plummeting oil prices, which foreign exchange executives believe is the primary macro problem affecting the ringgit.