Ringgit to recover in value due to ongoing structural reforms, says economist

KUALA LUMPUR: Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the value of the ringgit should be better than what it is now due to the government’s ongoing structural reforms.

He said currency fluctuations, especially for the ringgit, are normal and often driven by macroeconomic indicators given that Malaysia is an open trading nation.

"Looking at the macroeconomic indicators, Malaysia’s current account is still in a surplus balance of 1.2 per cent of gross domestic product (GDP) in 2023. This indicates that the country has savings which can be used for investments in the country.

"Our labour market is in full employment status as reflected in the lower unemployment rate of 3.3 per cent at the end of 2023. In that sense, the value of the ringgit should be better than what it is currently,” he told Bernama.

However, Mohd Afzanizam stated that due to the impact of sentiment on currency valuation, it is difficult to make predictions on the subject.

No need to press the panic button

In a statement yesterday (Feb 20), Bank Negara Malaysia governor Datuk Abdul Rasheed Ghaffour said the central bank is of the view that the current level of the ringgit does not reflect the positive prospects of the Malaysian economy.

"Reflecting these positive developments and the government’s commitment to implement structural reforms, including the expected lowering of interest rates in advanced economies, most analysts are forecasting the ringgit to appreciate this year,” said the BNM governor.

Mohd Afzanizam cited that the Public Finance and Fiscal Responsibility Act is also vital to the ongoing fiscal reforms to ensure governance and transparency in managing public finances and fiscal risks.

"What can be done is to stick to the plan of strengthening structural reforms such as corrective tax measures, subsidy rationalisation, continue attracting quality investors and addressing core issues.

"Given that Malaysia’s debt level is mainly in locally dominated currency and not external debt, there is no need to press the panic button,” he said.

Ringgit’s weakness is temporary

SPI Asset Management managing director Stephen Innes said the current weakness of the ringgit is temporary as global markets, especially Malaysia’s largest trading partner China, are rebalancing their inflation trends.

He considers the present depreciation of the ringgit to be an overreaction.

"Still, the broader context of many Asian countries struggling under tight financial conditions, especially those reliant on US dollar-denominated funding, makes accessing external funding prohibitively expensive,” said Innes.

He also said that while the current ringgit standpoint benefits exporters in Malaysia’s trade-dependent economy, the stubbornly high global inflation has dampened product demand, hence, the ringgit is between a rock and a hard place dynamic.

"The ringgit could ostensibly benefit the travel industry in Malaysia in the short term.

"But we continue to think 4.80 is an overshoot, especially with expectations of a rate cut by the United States Federal Reserve in the second half of the year,” Innes said.

Besides the ringgit, the Thai baht is also struggling under the weight of interest rate cuts to boost the local economy and Innes believes that BNM is also in the same predicament.

"However, reducing the rates might drive the ringgit even weaker over the short term,” he added. - Bernama