The ringgit’s weakness and Malaysia’s planned minimum wage hike on 1 May could compound cost-push inflationary pressures, CGS CIMB said in a note.
It said that despite Malaysia being an overall commodity exporter, the ringgit has not fared as well against the greenback as other commodity currencies, like the IDR and AUD
The stockbroking firm said that the positive correlation between crude oil price and ringgit has weakened significantly, as concerns over rising global inflation speeding up monetary policy tightening (especially in the US) and the slowdown in the global economy take centre stage.
As a result, the RM has depreciated by 2.0% MTD and 2.9% YTD 21 Apr 2022 vs. US$ due to overall strengthening dollar. “With surging raw material costs already eating into profit margins, producers have less room to absorb the impact of a weakening RM/US$ (for importers) and an imminent 25% hike in the monthly minimum wage to RM1,500 from 1 May 2022,” , CGS CIMB said.
It said that the US makes up about 6.3% of Malaysia’s imports, while exchange rates with other major import partners, especially China (at 26% share), have seen less volatility. “This implies the rise in imported inflation could be limited to certain goods and services,” it said
On rate hikes, the stockbroking firm said that despite the rise in core inflation, the increase is still at the low end of BNM’s 2022 forecast range of 2-3% yoy.
In addition, the risk of a global economic slowdown could be an added factor for a BNM rate normalisation ahead. We reiterate our end-2022 OPR forecast of 2.25%, with rate hikes likely happening in 2H22
