Ringgit to USD hits 3.50

From the edge daily

The ringgit is leading a retreat among Asia’s emerging-market currencies as oil prices slide and strategists predict Malaysia’s worsening current account will lead to further losses.

BNP Paribas SA, Macquarie Group Ltd., Malayan Banking Bhd. ( Financial Dashboard) and Skandinaviska Enskilda Banken AB are all in the process of cutting ringgit estimates, with the French lender saying Malaysia is set for the first deficit in its broadest measure of trade since 1997

I mentioned earlier in previous posts that the market collapse the last few weeks was due to oil price weakness. Now we see analysts who are late to the party.  The budget deficit was something I mentioned earlier, but the trade deficit is what is really hitting the market.  I'm not sure what Malaysia can do to stem a weakening currency.

The central government could raise rates, which would be detrimental to companies.  On the other hand they could lower rates which would spur capital investment and economic activity which in the long run is good for the currency.  In the short run though the currency would take a hit.  I advocate plan c.  Keep rates where they are.  Let the currency fall where it will.  Keep it simple.  Keep rates normal.

I suspect though that because the country doesn't want to have a trade deficit, the country will raise rates to bring imports in line with exports.

What will be the central bank's next move?  Zeti has received accolades as a central bank chairwoman.  For me, I don't think its deserving, as she largely has done nothing over the last few years.   I would say if she saw this coming, she could have

1) Lowered interest rates when the currency was strong.  Doing so would raise the economic output and build more foreign reserves.

2) With the lower rates already factored in and crude oil thus putting pressure on the currency, she now can raise rates without an extreme effect on the economy, For example starting from a lower base rate of 1.5 percent to a rise of 2 percent would put the economy on decent footing than a 3.5 percent to 4 percent increase in interest rate hike.