Ringgit Completes Steepest Annual Loss Since 1997 as Oil Slumps

  • Fed rate increase, China slowdown added to pain this year
  • Currency to fall more in 2016 though drop seen slowing: survey

Malaysia’s ringgit capped its biggest annual decline since 1997 as plunging crude prices and a political scandal involving Prime Minister Najib Razak clouded the outlook for the Southeast Asian economy.

Analysts are predicting more weakness next year for Asia’s worst-performing currency in 2015 as the Federal Reserve adds to this month’s increase in U.S. interest rates, boosting the dollar, and the slowdown in China saps demand for commodities. Malaysia, the region’s only major regional net oil exporter, gets about 22 percent of government revenue from energy-related sources.

The ringgit slumped 19 percent this year to 4.2925 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It sank to 4.48 in September, the weakest level in 17 years. The currency will drop 2.4 percent to 4.4 by end-2016, according to the median estimate in a Bloomberg survey.

“The rapid decline in oil prices, the dollar’s bullish bias and domestic issues were the main factors driving the ringgit’s weakness in 2015,” said Christopher Wong, a Singapore-based senior currency analyst at Malayan Banking Bhd. “While challenges remain, we see limited weakness in the ringgit in 2016.”

The ringgit’s slide is seen slowing next year as Brent crude prices steady after sinking to an 11-year low. Sentiment also improved after China General Nuclear Power Corp. agreed to buy state investment company 1Malaysia Development Bhd.’s power assets, which will help improve the debt-ridden firm’s finances. The ringgit has climbed 2.4 percent since Sept. 30, halting a five-quarter slump.

Najib, who chairs 1MDB’s advisory board, has drawn public criticism over the political donation he received from the Middle East that’s led to tensions within his ruling United Malays National Organisation and spurred anti-government street protests. Investigations are still ongoing.

Overseas investors sold a net 663 million ringgit of Malaysian shares from Dec. 7 to Dec. 11, according to a report from MIDF Amanah Investment Bank. That took sales this year to 19.2 billion ringgit, more than double the 6.9 billion ringgit for all of 2014. The nation’s foreign-exchange reserves dropped 18 percent this year to $94.9 billion as of Dec. 15.

The yield on 10-year government bonds increased 12 basis points this year to 4.20 percent, while that on five-year notes retreated 36 basis points, the most since 2010, to 3.46 percent, according to prices compiled by Bloomberg.

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