Malaysia’s Foreign Reserves Fall 14 Percent to Lowest Since 2011

Malaysia’s foreign-exchange reserves dropped to the lowest level since March 2011, a sign the central bank may have intervened to stem a slide in Southeast Asia’s worst-performing currency.

The holdings fell 14 percent to $116 billion as of end-December from a year earlier, Bank Negara Malaysia data showed today. They declined 4 percent from the previous fortnight. The ringgit has weakened 10 percent since June and dropped to a five-year low of 3.5862 a dollar yesterday. It closed 0.4 percent higher at 3.5665 in Kuala Lumpur today.

A slide in global crude prices has put pressure on the ringgit, posing a revenue risk for oil-exporting Malaysia, which is seeking to lower the fiscal deficit to 3 percent of gross domestic product in 2015 from 3.5 percent. The central bank may have intervened in the first two weeks of December to stem the currency’s slide, UBS AG strategists including Gareth Berry wrote in a research note earlier today.

Malaysia’s foreign reserves were supported by a bigger current-account surplus and foreign direct investment inflows in 2014, Bank Negara said in a statement. The holdings can finance 8.4 months of retained imports and are 1.1 times the short-term external debt, it said.

“The reserves are expected to remain ample in 2015, supported by trade and investment inflows,” Bank Negara said.

Debt Holdings

The central bank told local lenders last month to guard against speculation in its currency. All short-dated transactions requiring the exchange of ringgit for a foreign currency must be backed by documentation, Bank Negara Malaysia said in a Dec. 4 statement.

Concern about the nation’s finances is already starting to show in the local-currency debt market, where global funds reduced holdings of Malaysian government and corporate debt in November by 5.8 percent, the most since September 2011, to 236.5 billion ringgit ($66.2 billion), official data showed Dec. 31.

The impact on the ringgit from the drop in oil is “amplified by the heavy foreign presence” in bonds and equities, the UBS report said. Valuation effects will distort today’s reserves numbers, magnifying any drop, as the dollar rally into year-end lowered the U.S. currency value held in other currencies, it said.

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