State elections, lack of tourists affecting ringgit

KUALA LUMPUR: The renewed fall in the ringgit appears to be led by uncertainties stemming from the potential outcome of the upcoming six state elections, says Bank Islam (M) Bhd chief economist Firdaos Rosli.

He noted that any potential policy changes following the outcome of the state elections could be one of the reasons for the ringgit to drop.

The ringgit is currently close to the RM4.70 per US dollar level, near to the territory when the 15th General Election was held back in November 2022.

“This uncertainty actually dictates the movement of the ringgit of late. Another point is that there appears to be not as many tourists coming into Malaysia or maybe not as much as what we would like it to be,” Firdaos said at a media briefing yesterday.

“Our official tourist arrival numbers are delayed by six months, unlike Indonesia and Vietnam where it is published almost immediately.

“So we don’t really know if the tourists are coming – this is the question mark that is affecting the demand for ringgit locally,” he added.

In his presentation, Firdaos also warned on the persistent food inflation “if such a situation with the weakening of the ringgit persists.”

“The economy may be adversely impacted as 60% of our food supply is imported at present. As a result, containing inflation may be complicated,” he added.

Despite that, he believed the ringgit could potentially end the year at RM4.28 per US dollar following its resilient domestic outlook.

Firdaos noted his current forecast may change should the evolving conditions of the global economy become more rapid in the upcoming second half of the year.On another matter, Firdaos said it is important for the government to think of ways to replenish the Employees Provident Fund (EPF) monies that were prematurely withdrawn and used during the Covid-19 pandemic.

“We have to find how we can put back the RM145bil back into our EPF accounts together with the foregone dividends.

“This is important as if left unattended it would exacerbate the pension inadequacy in the future – if this happens then it would lead to much higher debt (reduced savings leading to higher debt-to-gross domestic product or GDP figure) in the future for us,” Firdaos said.

He noted there are several ways to go about this including a higher EPF contribution or another is to push GDP growth rates.

“So the higher the growth rates the ratios such as the debt-to-GDP ratio will come down and the government will then have ample fiscal space to work on.

“Another way is to increase the retirement age or working hours,” he said.

Meanwhile, the bank also expected the subsidy bill to naturally come down this year even if the government did not do anything since oil prices have trended downwards.

“Removing subsidies can be punitive to near-term growth and complicates improvements in wages at a time when price levels remain elevated in the post-pandemic era,” he said.

On its corporate update, Bank Islam’s group chief financial officer Azizan Abd Aziz said it expects a 7% to 8% in financing growth (loans growth) driven by the retail segment this year.

In terms of net interest margins, the bank expects this figure to improve towards 2.2% by the end of this year as it expects the competition for deposits to eventually ease.