Malaysia: Potential Surge In Ringgit To Above RM5.00 – OpEd
Before surging to RM4.0395 against the US dollar on August 12, 2015, the Malaysian ringgit had been below RM4. However, the currency’s decline persisted, reaching RM4.7845 against the dollar on February 19, 2024, and consistently remaining above RM4.00. There is a looming projection that the ringgit might breach RM5.00 in January 2025, with an anticipated average exchange rate surpassing RM5.00 for the following year, unless government intervention prevents such a surge.
Some economists suggest that a weaker ringgit could benefit the economy by enhancing export competitiveness. Yet, uncertainties surround whether this outcome is a theoretical assumption or a plausible reality. Others argue against this perspective, expressing concerns about potential lower export revenues and the adverse effects of a depreciated exchange rate on the economy. Additionally, there is apprehension about imported inflation resulting from elevated costs of imported inputs like food and oil, which may disrupt the supply of domestic goods heavily reliant on imports. The impending increase in average salaries next year could exacerbate inflationary pressures.
The depreciated ringgit can be attributed to either decreased demand, increased supply, or a combination of both in the market. The United States’ higher interest rates, attracting foreign investment, contribute to the higher supply of the Malaysian ringgit. To attract international investors, Malaysia’s Federal Bank may contemplate raising the Overnight Policy Rate (OPR), potentially boosting demand for the Malaysian ringgit. However, this decision poses a dilemma for the Federal Bank, as it may jeopardize consumer spending and business expansion.
Addressing the declining exchange rate is imperative, given its substantial challenges to the country’s economic stability. The weakened currency poses threats such as heightened import costs, inflationary pressures, and a potential loss of investor confidence. In light of these concerns, proactive measures to tackle the root causes of the declining exchange rate become crucial for the government.