PETALING JAYA: With the ringgit's gradual strengthening against the greenback having been given a fair share of media coverage in recent weeks, one could ask what this development means for Malaysia, particularly from an economic or corporate point of view.
The local currency, which closed at 3.6683 per dollar on Monday, has drawn contrasting views across the corporate board, especially when import and export activities are the main growth drivers of these companies.
Analysts however, basically think a stronger ringgit could be good for the Malaysian economic scene in the long run, with ECM Libra chief economist Wong Chee Seng saying continued ringgit appreciation could help improve the productivity and competitiveness of Malaysian industries.
“A cheaper ringgit breeds complacency, as we might be inclined to think our export competitiveness could never be eroded. With the strengthening, it could push us further up the value-added chain and compel us to improve our productivity as a whole, because export advantage for lower-end manufacturing is not there anymore,” said Wong.
He expects the ringgit to appreciate to 3.60 against the dollar by end-2006, and sees Bank Negara stepping in to prevent any volatility past that mark.
SBB Securities economist Manokaran Mottain thinks that the ringgit could touch the 3.56-3.60 range by year-end, based on the ringgit's fair valuation of 3.56 when the dollar-peg was undone last year.
“With this being the case, the central bank would probably not allow anything beyond 3.56, but that also remains to be seen,” he said.
He said the strengthening ringgit would benefit the economy as more foreign funds would be encouraged to enter the country.
“Companies with a high level of dollar-denominated loans like Tenaga (Nasional) would stand to benefit from lower coupon payments should the ringgit continue to be strong,” Manokaran said.
He said import-strong companies like auto and media groups would obviously gain from a strong ringgit, and travel companies like the airlines would enjoy lower fuel costs.
While he conceded export-inclined companies could lose competitiveness from a strong local currency, Manokaran said “their loss would be mitigated by the cost saved,” and hence an appreciating ringgit could have neutral or even positive impact on these companies. A strong ringgit could always provide a bigger local market as an alternative, he added.
RAM Consultancy chief economist Dr Yeah Kim Leng said Bank Negara's widely anticipated intervention at the projected year-end 3.60 mark could be to iron out any potentially harmful trade and investment disruptions from currency volatility.
“A strong currency is actually an indication of a strong economy, and the ringgit is no different. As the economy grows, our currency should appreciate to reflect the economy's robustness,” he said.
It would not even be surprising should the ringgit return to its pre-recession level of 2.5 per dollar in the near future, he said, but added that productivity and growth would have to improve and inflation levels be kept manageable for such an appreciation.
Yeah expects the stock market to perform well in reflection of a strong ringgit.
“There is a positive sentiment surrounding Asian markets for the past two to three years, and the appreciating currencies of these economies only mirror the optimistic outlook,” he said, adding that a strong ringgit could also help facilitate industrial upgrading.
Meanwhile, Prudential Asset Management Hong Kong head of investment research Robert Rountree said he doubted the ringgit appreciation so far would have much impact on the economy or the stock market, as it was still a “very cheap” currency.
“I suspect that the ringgit would have to appreciate significantly before it has a material impact on both economic activity and the equity market.
“Many of the Asian currencies have not moved much in relation to one another. The general picture seems to be that the region's central banks are wary of losing regional pricing competitiveness. The currencies, with a few exceptions such as the Korean won, have all tended to move within a long established broad band,” he added.
Standard Chartered regional economist Joseph Tan concurred with Rountree that the ringgit's strengthening thus far would not affect the economy much, as it was more of a case of “dollar weakening” than ringgit appreciation, as the other regional currencies had also moved.
Tan does not see the ringgit touching the 2.50 level any time soon as the strengthening had been “gradual and modest”.
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