Malaysia Lets Currency Slide; Others Follow

Emerging-market currencies weakened as Malaysia’s apparent decision to stop propping up the ringgit sparked concern that it and other countries may be forced to join the Philippines and Thailand in formally devaluing their currencies.

The Thai baht and Indonesian rupiah fell to records against the dollar. The Malaysian ringgit fell to a 17-month low, and the Philippine peso weakened.

The fallout also was felt in Eastern Europe, where the Czech koruna fell to a record low against the dollar as traders said they were growing weary of emerging-market currencies in general.

Global investors sold koruna after hearing of the trouble in Malaysia because many still think in terms of “one big block of emerging-market currencies,” said Petr Korous, head of the corporate bond desk at Ceskoslovenska Obchodni Banka in the Czech Republic capital of Prague.

The koruna also was hurt when the Czech National Bank’s governor, Josef Toskovsky, suggested the central bank may let the currency depreciate rather than spend hard currencies to keep it stable.

Malaysia, while not announcing a policy change, on Monday let the ringgit weaken. The central bank didn’t buy the currency, as it had done before, at 2.525 ringgit to the U.S. dollar. It was not clear, though, if it will return to the market.

“The central bank’s absence from the market amid all the problems with Southeast Asian currencies just made people buy the dollar for the ringgit,” said Owen Wong, manager for regional currencies at Tokai Bank in Singapore.

Roiled by two devaluations in as many weeks, Southeast Asia’s central banks are struggling to keep investors from betting against their currencies. The Philippines gave up that fight on Friday, devaluing the peso in tacit admission that it would be too costly to battle speculators.

Thailand did the same two weeks ago. In a preemptive move, Indonesia last week widened the rupiah’s trading band--the value the currency can lose before the central bank tries to prop it up by buying it in the market. This intervention makes it more expensive for speculators to attack.

“You’re getting a contagion effect from the nervousness about all the Southeast Asian currencies,” said Seema Desai, a regional economist at Schroders Securities in Singapore.

Malaysia’s central bank “may be trying to do an ambush,” said Neil Saker, head of regional economic research at SocGen Crosby Research in Singapore. “The ringgit is under intense pressure now.”

While Malaysia has about $28 billion worth of reserves, some analysts wonder how long it can keep up its defense. Like Thailand and the Philippines, Malaysia has worries about heavy bank lending to developers and a current-account deficit.

Malaysia, though, is not in nearly as bad shape as Thailand, where the economy is growing at the slowest rate in a decade.