KUALA LUMPUR: The Malaysian ringgit has become very weak against the US dollar and Singapore dollar lately.
According a CNA’ s interview with experts, the ringgit’s performance had declined 0.7 per cent in the first quarter of 2022.
The news portal added, the ringgit had further weakened against the US dollar since March, from trading below RM4.20 to hitting RM4.36 in early May. On May 19, the ringgit fell past RM4.40 against a strengthening dollar.
The ringgit also depreciated to a record low against the Singaporean dollar on May 24, touching RM3.2068, according to data from the Wall Street Journal.
Sunway University economics professor Yeah Kim Leng told CNA that the Singdollar had reached this new height as the country’s monetary policy was based on managing the exchange rate, and allowing interest rates to adjust freely with international rates.
“Singapore’s monetary authority is expected to appreciate its currency to counter the rise in imported inflation.
“As Malaysia’s interest rate adjustment is likely to be more gradual than international rates, the narrowing interest rate differential will be reflected in a weakening ringgit,” Prof Yeah explained to CNA.
Mr Hafidzi Razali, a senior analyst with strategic advisory firm Bower Group Asia, said the weakening of the ringgit to the US dollar was in part due to investors factoring in larger rate hikes by the US Federal Reserve, more so with inflation in the US reaching as high as 8.5 per cent recently.
He added that a weakening Chinese yuan against the US dollar had also indirectly affected the ringgit.
What happens when the Ringgit depreciated?
Malaysia’s weakened currency would result in higher import prices, burdening both consumers and importers, the experts said.
“Imports of intermediate and capital goods will be more expensive, raising production costs while slowing down capital investment and industrial upgrading,” Prof Yeah said.
Malaysian borrowers who had taken out foreign currency loans would also find their debt servicing burden increased due to the currency depreciation, he pointed out.
This means they have to convert more ringgit into US dollars to pay the same amount of loan instalments.
Mr Hafidzi pointed out that the increased costs of imports would also hit Malaysia in terms of necessities such as food, in which the country is a net importer.
“The impact of both weaker ringgit and higher inflation may limit private consumption, as consumers’ spending power is reduced.
“If it remains prolonged, this may impact the private consumption component for Malaysia’s gross domestic product (GDP) and impact the country’s economic growth percentage,” he explained.