Heightened fear of Interest rate hike in the UK, concerns of inflation locally, and outflow of funds from the local bourse has all added to the weakening of the ringgit, economists chimed in to say. This morning the ringgit slid further to open at 4.30 from 4.28 at yesterday’s close
They add that the bearish phase of the ringgit would remain throughout the year with the ringgit trading around 4.26 to 4.28 throughout the year.
Chief Economist and Head of AMBank Research at AmBank Group, Dr Anthony Dass said that the currency was trading around 4.28 and part of the reason was the strengthening of the dollar, driven by aggressive rate expectations with the May hike expectations to be 50bps and continue rising for the following two FOMC meetings.
He said that also the large-scale quantitative tightening (QT) of US$95billion a month further added to the strengthening of the dollar. “The QT is expected to cause a reversal of fund flows from the EM markets, including Malaysia,” he said
Anthony said that foreign equity flows have been in a net buying position until recently but since April 12, the KLCI has seen being seeing foreign net outflows with net selling of RM38 billion. “This is in tandem with the MSCI Emerging Index that has been declining quite substantially since 21 March 2022.
Another economist said that Bank Negara Malaysia not wanting to hike the rates in the near-term inspite of the inflationary pressures and possible rate hikes in the US is likely to put downward pressure on the ringgit.
In addition, he said that the recent introduction of minimum wage is likely to fuel an increase in aggregate demand that is likely to put further pressure on prices.
Another reason, he attributes to the weakening of the ringgit was that the prolonged slowdown in China would have substantial global spillovers adding that the IMF had cut China’s growth rate to around 4.4% from the projected 5.5% this year.
He said that t Malaysia being the largest trading partner would not be spared economically from China’s tailspin following the widespread Covid 19 lockdowns and supply chain disruptions.