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(KUALA LUMPUR) Chinese and Malaysian central banks agreed on a 80 billion yuan (S$17.7 billion) currency swap after the ringgit weakened and Malaysia's foreign reserves slumped 26 per cent in less than six months.
The three-year arrangement with China, which has the world's largest currency reserves at US$1.95 trillion, may be extended, Bank Negara Malaysia said in a statement on its website yesterday.
The agreement comes less than three weeks after China's central bank and the Hong Kong Monetary Authority agreed on a 200 billion yuan currency swap to help ease cash shortages. Malaysia is bolstering its access to funds as it seeks to avoid joining neighbouring Singapore in recession.
'This arrangement is designed to promote bilateral trade and investment for economic development of the two countries,' Malaysia's central bank said in its statement.
Malaysia's gold and foreign exchange reserves fell to US$91.3 billion on Jan 30 from US$123.7 billion on Aug 15 last year. The ringgit has lost 8.2 per cent in the past six months against the US dollar.
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Finance ministers from 13 Asian nations, including South Korea, Japan and China, agreed in May to create a pool of at least US$80 billion in foreign exchange reserves to be tapped to protect their currencies. In December, South Korea agreed on bilateral currency swap accords with Japan and China. The won has tumbled 25.7 per cent against the US dollar in the past six months.
Malaysia's government is planning a second stimulus package for the US$181 billion economy after announcing measures worth RM7 billion (S$2.9 billion) in November. Citigroup Inc said that it expects the domestic economy to enter recession in the first half of 2009.
Malaysia may miss the government's forecast for 3.5 per cent growth this year and the economy may start to contract, The Edge newspaper reported yesterday, citing Zeti Akhtar Aziz, governor of the country's central bank. -- Bloomberg
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