Companies told to hedge against ringgit volatility


  • Business
  • Wednesday, 22 Jul 2015

KUALA LUMPUR: Malaysian exporters have been urged to consider hedging the current level of ringgit, which is said to be best level for export, against the US dollar, besides increasing productivity by using local raw materials. 

Malaysia External Trade Development Corporation (Matrade) chief executive officer Datuk Dzulkifli Mahmud said Malaysian exporters, who obtained their revenue in US dollar, enjoyed a profit due to declining dollar, but as the ringgit depreciation was temporary in nature, hedging it to maintain the best level of exports was justified. 

"The cost of hedging method is rather small, so consult your banks and financial institutions. 

"We suggest small and medium enterprises (SMEs) boost their production capacity so that they can improve productivity and become more competitive," he told Bernama here recently. 

SMEs and exporters should use more local raw materials to reduce production costs and losses from foreign exchange rates, he said, adding that the quality of local raw materials were rest assured. 

The ringgit declined sharply against the US dollar to a six-year low in the second week of July, surpassing the 3.8000 peg imposed in 1998 after the local currency collapsed during the Asian financial crisis in 1997. 

Currency market traders attributed the volatility and depreciation of the ringgit against the US dollar to Greece's debt crisis, expected increase in US interest rates and issues confronting the beleaguered state sovereign fund 1Malaysia Development Bhd. 

Dzulkifli also advised SMEs to temporarily suspend purchases of capital goods like machineries and equipments from abroad to avoid high import costs to help stabilise the ringgit. 

He also urged local companies to consider using the Renminbi (RMB) clearing facility, which was being offered in the country to facilitate cross-border trade transactions. 

"China is Malaysia's major trading partner after ASEAN. We buy a lot of raw materials, machineries and spare parts from China and it is better to use RMB to minimise the currency fluctuation risks," he said. 

Matrade has advised local companies, especially SMEs to consider international partnership as another option to reduce the impact of the ringgit depreciation as they would be able to generate revenue in dollars. 

Dzulkifli said the government viewed the ringgit depreciation on trade seriously as Malaysia was ranked world's 25th largest trading nation and 23rd largest exporter in 2014. 

He said the government had set up the Export Promotion Council to foster exports so that the country could continue to enjoy trade surplus, apart from expanding exports to non-traditional markets such as Africa and Central Asia. 

"ASEAN also offers mega prospects in trade and investments, which will be more promising when the ASEAN Economic Community (AEC) is realised at year-end as it would be a single market with a population of about 630 million people. 

"We can focus on our exports more aggressively through AEC by producing more innovative and competitive products," he said. 

Dzulkifli said despite the challenging economic situation, Matrade would continue to implement various initiatives to boost the competitiveness of Malaysian exporters to turn them into global champions. 

Basically, the Malaysian economy is strong, but lately it is affected by external factors, he said. 

Dzulkifli concurred with Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz that the value of the ringgit did not reflect its real value and was confident that the depreciation was temporary in nature.- Bernama

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