PETALING JAYA: The ringgit has begun weakening against more currencies in the past weeks, in addition to the widely-reported depreciation against the US dollar and Singapore dollar.
The trend is quite worrying, according to a market observer, considering that some of these currencies belong to Malaysia’s biggest import destinations.
“The country’s import bill may spike, and with Malaysia being highly dependent on food imports, this could further contribute to food inflation,” he told StarBiz.
Malaysia’s food import bill for 2021 was at RM63.6bil.
Meanwhile, food inflation in June, was recorded at 6.1% compared with the headline inflation of 3.4%.
While it is impossible to predict the movement of the currency, there are expectations that the ringgit may face downward pressure as more countries experience a pick-up in economic growth, according to economists.
Between July 15 and Aug 15, the ringgit has weakened against almost all major regional and global currencies.
Based on Bloomberg data, the ringgit declined by 4.16% against the Japanese yen, Thai baht (3.34%), South Korean won (2.05%)
and Indonesian rupiah (1.92%).
After weakening significantly since March, the ringgit fell further by 1.74% against the Singapore dollar in the July 15 to Aug 15 period.
Against the Philippine peso, it fell by 1.24%, while it weakened marginally by 0.37% and 0.07% against the Hong Kong dollar and the Taiwanese dollar respectively.
The ringgit was flattish against the Chinese yuan, slipping by 0.02% in the one-month period.
The ringgit dropped by 1.91% against the British pound sterling, the euro (1.01%) and the Australian dollar (3.61%).
Against the US dollar, the ringgit fell further by 0.22% after weakening significantly since March.
It is noteworthy that some of the currencies that have strengthened against the ringgit belong to Malaysia’s major import sources.
They include Singapore, the United States, Taiwan, Japan and Europe.
Looking ahead, economists said the ringgit’s strength would depend on how the domestic economy performs to a large extent.
Malaysia University of Science and Technology economics professor Geoffrey Williams said the ringgit’s value is underpinned by solid fundamentals, attractive opportunities for short-term and long-term foreign investors and a “better look and feel” for the economy as a whole.
However, according to Williams, it is difficult to predict whether the country’s strong second-quarter economic growth would be sustainable into the rest of the year.
He also said the returns on the stock market and the general foreign direct investment environment had been weak for many years.
In addition, the country’s social and political environment suggests environmental, social and governance (ESG) risks, according to him.
“These are the drivers of the attractiveness of the ringgit in its own right but also relative to other regional and global options.
“In other words, taking economic, financial as well as ESG issues together, investors – even Malaysians – have better options overseas,” he said.
Centre for Market Education CEO Carmelo Ferlito said there should be a clear and sound economic agenda for the ringgit to regain strength.
On top of this, he said political stability, with “a clear and united majority” for the government in the upcoming general election, is also important.
“The Malaysian economy is strengthening and I think that the eventual general election outcome will play an important role on the behaviour of the currency.
“Malaysia also needs to keep the good pace of growth and further strengthen its investment potential, which showed positive signs in the second quarter of 2022.
“In addition, the country needs the ability to go more beyond China in international trade,” he said.
He was asked whether the ringgit would face further headwinds as more regional economies recover at a faster pace.
In response, he said it would depend on the strength of the recovery in the countries, both qualitatively and quantitatively.
“It also depends on their ability to tackle inflation and on political stability,” he added.
MUST’s Williams noted that the general outlook for all markets in the second half of 2022 is likely to be weaker due to global conditions.
“This would reflect in relative performance and the strengthening or weakening of currencies is indeterminate,” he said.
On whether the ringgit’s weakness against the US dollar would extend into 2023, Williams said the current foreign exchange market is affected more by the developments in the United States compared with what is happening in Malaysia.
The aggressive interest rate hikes in the United States have triggered an outflow of funds from developing economies, including Malaysia, back into the world’s largest economy.This in turn has strengthened the greenback, resulting in many weaker currencies against the US dollar, including the ringgit.
“It is not possible to say whether the ringgit will weaken or strengthen into 2023.
“The outlook for the rest of 2022 is also uncertain,” according to Williams.