The falling Ringgit can be attributed to the national currency being backed by commodities which has seen drastic price reduction over the course of the last two years.
Speaking exclusively to BusinessToday on the sidelines of the MAMG Global Dividend Fund launch event today (July 12), Maybank Asset Management Chief Investment Officer Syhiful Zamri Abdul Azid said: “Our ringgit is backed by commodities and as you can see the oil price now has adjusted lower compared to last year. That is why the ringgit is becoming lower now. And also, the gap between our interest rate and the U.S interest rate has gone up so fast. Our OPR is normally adjusted in a periodical manner.”
The weakening of the Ringgit to the USD is not unique to the Ringgit itself, but the USD is strengthening against most currencies. Syhiful added Bank Negara Malaysia (BNM) is careful with regards to the interest rate as the mandate is more on maintaining an accommodative OPR to support the nation’s growth rather than fighting inflation. The gap between local interest rate and the U.S interest rate is another reason why the USD has appreciated so strongly against the Ringgit.
“But this is temporary. For me this is just a transition. Because as we know, U.S interest rate will come down fast as well. The moment they start to have a pivot towards the lower interest rate environment in the U.S, then the USD will start to weaken a lot,” he said.
Against other members of ASEAN, the Ringgit is indeed the worst performing currency. Syhiful said most ASEAN members are importers of oil unlike Malaysia which is an exporter. Hence Malaysia’s regional peers will reap the benefits of the current softening oil price.
Other factors contributing to the Ringgit’s decline are such as the stability of the domestic economy and the underlying political uncertainty due to the coming state election.
When the comparison between the monetary policy of the other ASEAN members and Malaysia is made, Syhiful said they are no different from us, being back to pre pandemic rates.
Syhiful forecasted that the Ringgit would appreciate slightly against the USD to 4.50 this year. Towards the first half of next year, the Ringgit is predicted to appreciate further to somewhere between 4.20 to 4.30 against the USD.
Regarding the Singapore Dollar, Syhiful said our neighbouring nation’s currency more or less takes its cue from the USD, being in the developed market category. He said the Ringgit will likely depreciate against the Sing Dollar for the short term.
“This is a transition. We should be seeing the Ringgit strengthening against the USD and similarly against the Sing Dollar as soon as we see U.S Federal Reserve pivot. Basically they start to say that they have to be more accommodative going forward. Because they already start to stop raising in June. This July basically, constantly, people are saying they probably increase another 25 basis. But the statement after that, if they start to say we are done with the increase, then there will be the strong pivot,” said Syhiful.
According to a statement made by the Financial Market Committee (FMC) on 27 June 2023, the external environment continues to be the main driver of the ringgit’s performance, particularly the evolving market expectations of higher terminal interest rates in most major economies, which in turn, raises risks of a possible marked slowdown in the global economy.
At the same time, the People’s Bank of China has lowered interest rates amidst signs that China’s post-Covid economic recovery is losing its momentum. The Ringgit, along with other regional currencies, has been weighed down by these developments.
Against the backdrop of the US dollar strength, the FMC observed that the extent of the recent depreciation of the Ringgit is not reflective of Malaysia’s economic fundamentals.
The FMC noted that while the Ringgit volatility has risen consistently with those of regional currencies’, the extent of the volatility increases has been disproportionately higher and deviating from historical relative movements.
Notwithstanding this, the onshore financial markets remain on solid footing. Ringgit FX volatility remains the lowest among regional peers. This was underpinned by a healthy increase in daily FX turnover volumes over the past few years, averaging USD15.1 billion year-to-date.
Looking ahead, in addition to Malaysia’s strong economic fundamentals, the FMC is of the opinion that further clarity on the US Fed’s terminal rate and possible positive signs from stimulus measures out of China may provide support to the ringgit and Asian currencies in general. As it stands, recent forecasts by analysts and economists continue to point to broad-based recovery against the US dollar by year end.
