Saturday August 9, 2008

Ringgit falls below 3.30 against US dollar

By IZWAN IDRIS

PETALING JAYA: The ringgit fell below 3.30 against the US dollar for the first time in eight months, pressured by foreign sell down on local stocks and bonds.

The ringgit fell as much as 0.7% to 3.309 to the greenback yesterday, and was at 3.3012 at 5pm. At yesterday’s level, the local unit was back to where it was at the start of the year.

Economists expected further pressure on the ringgit, on the increasing likelihood that Bank Negara would keep interest rates at current levels as prices of crude oil and other commodities declined.

The weak ringgit will help local companies boost their export earnings, but make import of food products more expensive.

On Thursday, Bank Negara said the country’s foreign exchange reserves at US$125.1bil as at end-July showed the first monthly decline since August last year.

Late last month, the central bank kept interest rates unchanged, despite faster inflation in June. Meanwhile, on Bursa Malaysia, plantation stocks tumbled as crude palm oil plunged in recent weeks.

Foreign investors own significant chunks in top three plantation stocks Sime Darby Bhd, IOI Corp Bhd and Kuala Lumpur Kepong Bhd. The three planters had lost a combined RM34bil in market value since the start of July.

The KL Composite Index dropped 5.6% during the same period at yesterday’s close of 1,120.31.

“The weakening equity market is expected to weigh down on investors’ sentiment, and hence lead to either lower inflows or outflows of portfolio investment,” CIMB Research’s economist Lee Heng Guie wrote in a note yesterday.

He said the drop in foreign reserves reflected the large outflow of portfolio investments, which offset the continued inflow of export proceeds.

Meanwhile, RHB Research Institute said yesterday the foreign sell-off on Bank Negara’s issued papers and Malaysian government securities was evidenced since May.

“We expect foreign investors to continue unwinding their holdings in fixed income securities, given the ringgit will likely weaken further on the back of a strengthening US dollar,” the firm said.

The US dollar rose against almost all major currencies yesterday. The euro declined against the greenback for a fourth week on rising prospects the European central bank would keep lending rates as growth slows down in the region.