PETALING JAYA: China’s central bank adjusted the yuan downwards for the second consecutive day, sending markets and currencies reeling.
The ringgit continued its fall against the US dollar, hitting a new low of RM4.0275, largely due to the devaluation of the yuan.
All currencies in the region also continued with their decline against the US dollar.
On a year-to-date basis, the ringgit is the worst performer among its Asian peers, and is down 13.33%. This is followed by the Indonesian rupiah, South Korean won and Thai baht at 9.88%, 8.35% and 6.99%, respectively.
Comparatively, the yuan is now down approximately 4.61%.
The impact on the ringgit is worse compared to other countries because Malaysia is viewed as a net exporter of energy and prices are depressed now – hovering below the US$50 per barrel mark.
Stock markets across the region fell with the Jakarta Composite Index leading the pack by falling 3.1% followed by Hong Kong’s Hang Seng Index which dropped 2.38%.
There was a “bloodbath” on Bursa Malaysia where about 90% of the 1,000-odd stocks listed closed lower.
The benchmark KLCI fell for the fifth consecutive day, shedding 26.8 points yesterday to close at 1609 points. Since last Thursday, the index has been down by 116 points.
On Tuesday, the People Bank of China (PBOC) moved the guiding rate for the yuan 2% downwards and yesterday it set it at 1.6% lower. The guiding rate is the band within which the yuan is allowed to trade.
The downward movement is viewed as a devaluation of the yuan and the biggest currency movement for the world’s second largest economy since 1994. Although China abandoned its currency peg in 2005, the central bank manages the yuan in a tight range.
The devaluation of the yuan has sparked concerns that China’s economic slowdown was more severe than anticipated and the central bank had to devalue the currency to export its way out of the situation.
Independent economist Lee Heng Guie said that the devaluation that has sparked a global currency war may end up with no winners.
The impact on depreciating ringgit is likely to be felt most by companies which import their raw materials, consumers and parents with children studying overseas.
