Ringgit depreciates sharply against three currencies


  • Business
  • Wednesday, 17 Nov 2004

BY KATHY FONG

THE local currency, which is pegged to the US dollar, has lately depreciated sharply against other currencies – such as the Aussie, the Singapore dollar and the euro – in tandem with the softening greenback.  

The exchange rate for the euro surged to a record RM4.93 in early London trade, rising nearly 10% from the year's low of RM4.49 on May 13.  

And the Singapore dollar appreciated to an almost six-year high of RM2.30 yesterday from RM2.20-level in July.  

The Australian dollar soared to RM2.94 from its year-low of RM2.59 in June.  

The Aussie regained strength amid speculation on the Reserve Bank of Australia raising its interest rate to cool down the country's fast expanding economy, powered partly by strong commodity prices. And, the unemployment rate has dropped to a 26-year low of 5.3%. 

The pound sterling was at RM7.04 yesterday, compared with RM6.74 in early September. 

The higher exchange rates of foreign currencies will result in imported goods being more costly for Malaysians, and make overseas trips more expensive. It will probably also fuel cost-push inflation.  

However, economists said they had yet to see signs of strong imported inflation in Malaysia.  

Exporters will be happy to see a weaker ringgit, which will boost the price competitiveness of Malaysian goods in the global market.  

As usual, the depreciation of the ringgit will again trigger speculation on the likelihood of the Government reviewing its currency peg policy. 

The US dollar has been under renewed pressure since September, the widening deficits in the current account and the US national budget, as a result of tax cuts and increasing military spending, being the main factor pulling down the greenback.  

According to CNN, the US dollar accounts for about 70% of the world's currency reserves.  

However, economists noted that the percentage might fall significantly, as central banks around world were likely to switch to other currencies if the greenback were to depreciate further against other currencies. 

The US dollar dipped to a low of 105.26 yen yesterday from above 109 early last month, and to a nine-month low of A$1.29 from a high of A$1.45 in early September. 

And, in early London trade yesterday, the euro appreciated to almost US$1.30. 

Some economists believe a prolonged drop of the US dollar will prompt the American Government to raise interest rates to make the currency appealing to global investment funds, given that the US' current account is mainly financed by inflows of foreign money. 

Related Stories:UBS: Ringgit peg may be lifted in first half of next year 

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