(Bloomberg) -- Malaysia’s central bank is “always ready” to curb the ringgit’s volatility, a senior finance official said, as investors eye a key threshold in the currency that may warrant a stronger intervention.

Bank Negara Malaysia is prepared to sell US dollars from its reserves to “restrict excessive weakness in the ringgit,” Amir Hamzah Azizan, the nation’s second finance minister, said Thursday.

“The government takes the performance of the ringgit seriously and is committed to defending and strengthening the ringgit’s position,” he said in response to questions in parliament.

Policymakers have stepped up their rhetoric to rein in the local currency’s fall after it reached the weakest level since the height of the Asian financial crisis in 1998 last week. Malaysia’s depreciating currency is set to raise prices of goods and services, posing challenges for authorities as they contemplate their next monetary policy move.

The ringgit rose 0.2% to 4.7605 per dollar as of 3:45 p.m. in Kuala Lumpur. It has weakened 3.5% this year, among the worst performers in emerging Asia.

State Street Global Advisors’ Kheng Siang Ng, who started his career as a portfolio manager at Bank Negara Malaysia almost three decades ago, expects the authority to intervene at around 4.8 ringgit per dollar. That’s also a view held by analysts from banks including Oversea-Chinese Banking Corp. and Sumitomo Mitsui Banking Corp. 

“The increased frequency of officials talking about the ringgit suggest that they have stepped up scrutiny,” said Christopher Wong, a currency strategist at OCBC in Singapore. “If there is any sharp, one-sided move, then it may warrant some action.” 

The Southeast Asian country is already grappling with a slowing economy amid sputtering growth in China, its biggest trading partner. Economists have trimmed their forecast for Malaysia’s growth this year to 4.3% after expansion came in slower than expected in 2023.  

“This will make the rate cut thesis a challenging one as BNM needs to weigh the prospect of higher inflation and the need to support growth,” said Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia Bhd. 

Bank Negara Malaysia has held its key rate at 3% since July, putting it at a record discount to the upper bound of the Federal Reserve’s benchmark. The interest rate gap of as much as 250 basis points encourages foreign investors to move capital out of the domestic market to one that provides higher returns, Amir Hamzah said. The US dollar’s resilience is adding to the pressure on the ringgit. 

The currency’s slide has also become ammunition for the country’s opposition party, piling pressure on Prime Minister Anwar Ibrahim’s coalition government. Some analysts have said there is further risk the currency will weaken to record lows.

The outlook for the economy is improving and the currency will strengthen this year, Amir Hamzah said. Analysts surveyed by Bloomberg expect the ringgit to rebound to 4.5 by the end of the year.

Bank Negara Governor Abdul Rasheed Ghaffour on Tuesday said the ringgit ought to trade higher given the nation’s positive economic outlook, though he stopped short of saying officials will intervene in the market. 

“The central bank’s primary objective is to prevent overshoot,” said Ng, head of Asia Pacific fixed income at State Street Global Advisors. “If they feel this has been achieved, there is no need to have large intervention.”

Malaysia held about $115 billion of foreign reserves as of mid-February.

“Any actual intervention is likely to be more to lean against the wind than something aggressive,” said Moh Siong Sim, a currency strategist at Bank of Singapore Ltd. “Reserves adequacy is relatively lower compared to its Asian peers. That is a constraint.”

--With assistance from Joy Lee.

(Updates ringgit level, adds comment from Bloomberg Economics)

©2024 Bloomberg L.P.