Malaysia Central Bank Demand for Signed Letters Appears Innefective

Malaysia’s attempts to force currency traders overseas to stop selling down the ringgit, as investors flee the country’s bond market, has had little discernible impact so far, traders and analysts say.

Over a week ago, Bank Negara Malaysia demanded that offshore banks confirm through signed letters that neither they nor their corporate clients would trade the ringgit on the non-deliverable forward markets.

An NDF allows banks and companies to hedge or speculate on emerging market currencies overseas when exchange controls in those countries make it difficult to trade directly on the spot market.

Bank Negara sent the letters to about 58 firms in Malaysia that have connections to offshore ringgit trading. Only a half-dozen offshore firms signed the letters, the Bank said last week.

The move has done little to bring ringgit trading onshore so far, traders said.

“If you think the economy is not doing well, then going onshore (to trade) will hardly help, as there is a high possibility the government may slap capital controls to protect its currency or domestic markets. And that would be very painful,” said Nitin Dialdas, chief investment officer at Mandarin Capital Limited.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza