Commodity shock, 1MDB, and ringgit depreciation

Through 2015, the ringgit depreciated sharply as Brent crude fell by double digits in some months, including an 11 percent drop in March alone, hitting a commodity- and oil-exposed economy where petroleum-related revenue had long underpinned the government budget and export earnings. Bank Negara Malaysia's 2015 annual report framed the depreciation partly as a necessary buffer, a deputy governor noting the 'terms of trade shock' meant a weaker currency helped cushion the decline in commodity-linked incomes from palm oil and energy exports rather than forcing a harsher domestic adjustment. The currency's slide was compounded by the unfolding 1MDB state-fund scandal, which weighed on investor sentiment toward Malaysian assets independent of the commodity story; then-governor Zeti Akhtar Aziz argued the ringgit had become 'significantly undervalued' relative to the country's underlying fundamentals and expressed hope it would recover once the 1MDB controversy was resolved. The combined shock left the ringgit as one of the worst-performing Asian currencies that year, even though Malaysia avoided the kind of reserve-depleting crisis it had faced in 1997-98.