Malaysia seeks to nix 1998 parallel as it herds MYR bears – 22 Nov 2016

Malaysia’s attempt to cajole currency traders to stop selling down its plunging MYR is evoking memories of 1998 capital controls among global banks – a comparison policymakers were quick to discourage.     RBC Capital Markets and Brown Brothers Harriman said investors were reminded of the Asian financial crisis 18 years ago, after the Malaysian central bank warned foreign banks against using offshore forwards to bet against the currency and vowed to limit speculation.     While Bank Negara said on 18 Nov 16 that it was stepping in to “maintain orderliness” following a 5% tumble over the past month, its assistant governor Adnan Zaylani said it was not considering tightening controls on the flow of funds across its borders.     “The motivation to try and reduce speculation is a reasonable one from a central bank perspective,” said Ms Sue Trinh, head of Asia foreign exchange strategy at RBC Capital Markets in Hong Kong. “But there are always unintended consequences. Moving the goal posts suddenly and on a whim has destroyed liquidity and foreign investor confidence.”     One-month non-deliverable forwards, which fix a rate for exchanging the MYR in the future but are settled in USD, plunged 6.3% in the period and touched an unprecedented 4.5848 on 11 Nov 16, the widest discount to the spot rate on record.     The latest slump seems more urgent than the currency’s slide through to the middle of 2015. While that move helped slow economic growth and made consumers less likely to spend, only the past month’s decline spurred the central bank to expressly say it was intervening. The central bank has rarely disclosed any episodes of intervention.

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