SINGAPORE: The situation does not look good for the Malaysian ringgit at the moment, as it has fallen to its lowest level in the 25 years since the Asian financial crisis of 1997-1998. The rising US dollar has caused the ringgit to drop 0.3 per cent to 4.7635 per US$, its lowest rate since 1998.
After the Japanese yen, the ringgit has been the worst performer in Asia this year, dropping by more than 8 per cent against the US dollar. Bloomberg noted on Oct 18 that in the past six months through August, Malaysia has consistently posted lower export numbers. This is due, at least in part, to an economic slowdown in China, which is the Southeast Asian country’s biggest trading partner.
September’s export data, released on Thursday (Oct 19) by the government, showed that exports fell by 13.7 per cent, although the decline was slower than the 16.5 per cent expected by 17 economists to whom Reuters spoke.
Bloomberg pointed out that the ringgit’s most recent fall has come at the same time that the dollar has gained on haven demand amidst concerns over the war between Israel and Hamas.
Mr Vishnu Varathan, the head of economics and strategy at Mizuho Bank Ltd. in Singapore, was quoted by Bloomberg as saying that the ringgit has underperformed because of “real rate spreads that could turn a lot more unfavorable, especially as the subsidy rollback hits inflation and reveals softer real policy rates”.
The ringgit’s downward trajectory this year has been a boon for many Singaporeans, who have crossed the border to Johor Bahru for food trips and retail therapy.
In May, it was reported that the Singdollar gained strength because of capital inflows and successive policy tightening, while the sluggish price of oil and a weakening Chinese economy have hurt Malaysia.
Mr Galvin Chia, a currency strategist at NatWest Markets, was then quoted as saying, “Historical ringgit volatility is picking up again, and I think that the main driver is the market’s incrementally more bearish views on China.”
In July, the Singapore dollar posted a record high against the ringgit when it reached SGD1 = RM3.47, the same rate it holds today.
“While Malaysia is not alone in experiencing sizeable currency depreciation against the US dollar, its steeper decline versus its Asean peers could be attributed to its higher exposure to the Chinese economy and renminbi movements,” said Yeah Kim Leng, an economics professor at Malaysia’s Sunway University, in a report published by the South China Morning Post that month.