All eyes on Bank Negara

How much does this get me now?: Eric Tam, 59, exchanging some currency at a money exchange counter at Taman Perling, Johor Baru. — THOMAS YONG/The Star

PETALING JAYA: As the ringgit continues its decline against the US dollar, the focus is now on Bank Negara to come up with remedies to arrest this slide.

Deputy Finance Minister I Datuk Seri Ahmad Maslan said the government was confident in the central bank’s ability and judgment to reign in the ringgit’s slump to RM4.62 to the US dollar yesterday.

Economists, meanwhile, said there were both short-term and medium-to-long term measures that could ease the pressure on the ringgit.

ALSO READ: BNM: Ringgit will rise when foreign uncertainty subsides

Prof Yeah Kim Leng of Sunway University said two of the short-term measures involved encouraging exporters to remit their earnings, which are in US dollars, into ringgit as quickly as possible.

Secondly, overseas investments should also be repatriated and converted into ringgit, he added.

In the medium term, he said the government can shore up investor confidence and the growth prospects of the Malaysian economy and its attractiveness as an investment destination.

ALSO READ: For now, exporters are enjoying the higher dollar

“For instance, announcements on new investments and reshoring of overseas operations to Malaysia are things that inspire confidence in Malaysia,” said Prof Yeah, who is also an adviser to the Finance Ministry.

He added that in the long term, the government must continue its restructuring of the economy to attract high value investments because once this occurs, the ringgit will increase in value.

As of 11am yesterday, the ringgit traded higher against a basket of major currencies, including the Japanese yen and British pound.

The local note improved against the Singapore dollar and the Thai baht but declined against the Indonesian rupiah.

Another economist, Lee Heng Guie, attributed the ringgit’s decline to worldwide uncertainty whether the United States would be able to resolve its debt ceiling crisis before June 1.

It is reported that the US government is in talks to raise its debt ceiling before that deadline and a failure to do so could result in a massive downturn for its economy.

Lee said this uncertainty is causing investors to lose confidence in emerging market currencies such as the ringgit.

“A big interest rate differential between the OPR (overnight policy rate) and the Federal Reserve funds rate at around 225 basis points also affects the sentiment on the ringgit,” said Lee, of think tank Socio-Economic Research Centre.

“Regional currencies have also been affected by uncertainties about the US debt ceiling talks and whether it will lead to a slowdown in the US economy.”

Lee added that some of the limited benefits from the ringgit include an increase in Malaysian exports as locally-made goods would be cheaper and more attractive to the global market.

Other beneficiaries of a weaker ringgit are businesses in southern Johor Baru which will continue to see brisk trade from Malaysians earning Singaporean dollars and Singaporeans who shop in Malaysia.

Johor Chinese Chambers of Commerce and Industry president Low Kueck Shin said the exchange rate of RM3.40 to S$1 has seen a weekly flood of visitors over the Causeway into Johor Baru.

“These days, Johor Baru is even packed on Mondays and Tuesdays because visitors want to avoid crowds on weekends.

“But this pushes prices up for food, transport and property for local Malaysians who earn in ringgit.

“So in the end, the benefits of a higher Singaporean dollar is felt by only a few and not spread evenly throughout Johor,” Low told The Star.

Lee from SERC echoed this point as a higher US dollar means that imports, including food and raw materials to manufacture goods, become more expensive, leading to higher inflation.

“Producers whose raw materials and inputs are imported will experience higher costs and these costs could be passed through to consumers,” he said.

On average, a 5% depreciation of the ringgit to the US dollar leads to a 0.1 – 0.3% impact on core inflation, Lee said.

“But it must be remembered that even though the ringgit is down, it could still quickly recover again as it did in the past.”

For instance, the ringgit climbed by 1.8% in November, the highest in two months, after Datuk Seri Anwar Ibrahim was sworn in as Prime Minister.

Meanwhile, MCA deputy treasurer-general Datuk Lawrence Low urged the government to take immediate steps to revive the ringgit and stimulate economic growth.

“The continuous weakening of the ringgit has created significant challenges for businesses, leading to a loss of competitiveness in the global market.

“This, in turn, puts pressure on the cost of living for the people, impacting their purchasing power and overall well-being,” he said in a statement yesterday.

He said the immediate strategy should be to allow enterprises to store foreign currency in foreign exchange accounts to provide stability and minimise losses due to currency fluctuations.

Low’s medium-term strategies include strengthening export promotion efforts by expanding trade missions, enhancing marketing campaigns and offering financial incentives to boost exports, with the long-term strategy being to promote economic diversification.

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