Asian Crisis Veteran Zeti Says Ringgit Weakness Is Temporary

The ringgit trading at levels seen during the Asian Financial Crisis isn’t reflective of Malaysia’s economic fundamentals and the depreciation is expected to be temporary, central bank Governor Zeti Akhtar Aziz said.

Emerging market currencies are affected by uncertainties in the global economy and most of their declines are not consistent with growth prospects, Zeti said in an e-mailed response to questions from Bloomberg News Monday. The ringgit slid to a nine-year low, and led a drop among Asian currencies after a better-than-expected U.S. jobs report supported the Federal Reserve’s case to tighten monetary policy.

The currency’s weakness during the 1997-1998 crisis occurred “when Malaysia was experiencing a major recession, when our reserve levels were low, when financial markets had plummeted, when several financial institutions were in distress and when the current account of the balance of payments was in deficit,” Zeti said. “None of these extreme conditions are prevailing today. Malaysia’s current economic fundamentals are now markedly different.”

Zeti, one of the region’s longest-serving governors, oversaw Malaysia’s monetary and currency responses to the Asian financial crisis. She was assistant governor responsible for economics, reserves management, money market and foreign-exchange operations when Thailand devalued the baht in July 1997, setting off a plunge in regional currencies. The ringgit tumbled 35 percent that year.

The ringgit ended 1.4 percent down at 3.7720 a dollar on Monday after earlier falling to 3.7743, close to the 3.8 level at which it was pegged from 1998 until 2005. It has weakened 7.3 percent this year, the worst performance in Asia after Indonesia’s rupiah.

Crude Exporter

The prospect of higher U.S. interest rates is compounding pressure on the ringgit, which has been hurt by lower oil prices and concern about the ability of a state-owned investment company to fix its finances. Malaysia is an exporter of crude and derives about 22 percent of government revenue from energy-related sources.

The currency is expected to resume trading at levels that reflect the nation’s fundamentals when uncertainty affecting market sentiment subsides, Zeti said. The economy is forecast to grow 4.5 percent to 5.5 percent this year, after an expansion of 6 percent in 2014.

“Bank Negara Malaysia also wishes to emphasize that the exchange rate is not an instrument of monetary policy nor a tool to gain competitiveness,” she said. “The Bank however stands ready to maintain orderly conditions in the foreign exchange market.”

The nation’s foreign-exchange reserves climbed to $106.4 billion as of the end of May, after falling to $105.1 billion in March, the lowest level since 2010 and below the 10-year average of about $112 billion.

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