Ringgit weakness to remain a constraint on policy in Malaysia

The Malaysian ringgit weakened past its 1998-2005 peg level of 3.80 against the dollar today for the first time since the peg was scrapped. Today’s decline may have been triggered by concern over the fallout from Greece’s referendum, along with local political factors. But the bigger picture is that the currency has performed poorly over the past year. The risk of further depreciation is one reason why we think the central bank is unlikely to cut rates even with the economy likely to slow.