PETALING JAYA: Cheap airfare is a boon for holidaymakers going overseas, but Malaysians can’t help but feel a little short-changed after a trip to money changers.
Take the Thai baht, which had advanced 13.2% over the past six months. At 8.93 last week, the baht is at its most expensive against the ringgit since 2007.
Jakarta would have been a cheaper destination, currency wise, as the rupiah performance was tempered by Bank Indonesia’s unexpected interest rate cut last Tuesday. At current exchange rate, you can get around 3,500 rupiah for one ringgit. Six months ago, one ringgit will buy you 3,650 rupiah.
Hong Kong, a favourite shopping destination for many Malaysian, has become 15% more expensive since August last year. The Hong Kong dollar is pegged to the US dollar, against which the ringgit had weakened to 3.647 on Wednesday, before the market closed for the Chinese New year holidays.
At that level, the ringgit was at a five-year low against the greenback. CIMB Research said the ringgit was likely to hold above 3.70 against the US dollar.
And unlike during the 1990’s financial crisis, Malaysia’s economy continues to be resilient, despite falling oil prices and a surge of foreign outflow.
Bank Negara will release its mid-monthly foreign exchange reserves report later this week, which would probably show another decline. But with more than US$100bil in foreign exchange stockpile, the central bank has the firepower to keep currency speculators at bay.
Analysts, however, expect little respite for the ringgit this year, as the US Federal Reserve moves ever closer towards raising interest rate for the first time in almost a decade.
Meanwhile, a growing number of central banks is cutting interest rates and watching their currencies fall against the strong US dollar.
Indonesia was the most recent among Asian countries to lower its domestic interest rate. Singapore in January loosen its monetary policy to keep its currency low.
China and India have already lowered their rates. Analysts believe Thailand might also jump on the easing bandwagon soon.
The baht, compared with the weak ringgit, had been surprisingly strong, easing just 1.3% against the US dollar over the same six month period.
It has been one of Asia’s best performing currencies, despite a military coup last year and weak growth that normally scare away investors. A factor that is helping the Thai economy is plunging crude oil prices.
This is a contrast compared with Malaysia, which is viewed as oil-based economy. Petroleum income makes up about a third of the Government’s annual budget revenue.
The Government, in January, was forced to review its spending for this year to keep the target of gradually reducing the country’s budget deficit intact, as the sliding crude oil hurt revenue.
As the ringgit performance is locked to oil prices, expect more volatility ahead.
As it is, the turmoil in the currency market has pushed up the cost of overseas holiday and the price of imported goods for Malaysians. But some economists reckon that the cheaper ringgit is not all that bad.
The weaker ringgit, driven largely by falling price of crude oil, might help buffer the economy from job losses and a slowdown in growth.
Palm oil producers, which are enjoying a relatively stable price of crude palm oil in the international market, are effectively given the boost from the weak ringgit.
Other exporters, like manufacturer of rubber gloves, are also prime beneficiaries.