Ringgit’s steep decline against the US dollar will not necessarily result in the traditional “textbook responses” of higher exports, wider account surplus and more tourism money, said analysts.
Experts contacted by The Malaysian Reserve said that the local unit is venturing into uncharted territories with no easy solution, despite the country’s strong fundamentals and positive growth prospects.
“Textbooks would tell you that the ringgit’s decline means that it is good news for exporters and people who depend on domestic tourism. But that may not be the case,” said Firdaus Rosli, a fellow at the Institute of Strategic and International Studies.
“The decline that we are facing right now is not something structural,” Firdaus said, adding that there are too many uncertainties surrounding the world economy that have made it hard to predict any possible outcome.
“There are a lot of speculative arguments out there. To say that we are going to see a ‘textbook response’, I don’t think that will happen because total trade growth is still not at a level that is expected,” Firdaos said.
Ringgit continued to lose ground against the greenback, sliding 0.54% last Friday to close at RM4.41 and inching closer to its 52-week low of RM4.44, according to Bloomberg data.
The local unit, among the worst performing currencies, shed 4.2% of its value in the 10 days since Donald Trump won the US presidential election.
All Asian currencies have weakened against the US dollar since Trump’s surprise victory on Nov 8.
The South Korean won dropped to 1,183.2 (RM4.42) while the Singaporean dollar tumbled to S$1.43 (RM4.43) against the greenback last Friday.
Besides Trump’s election promise of higher growth in the US, ringgit’s volatility is affected by the increased possibility of an interest-rate hike by the US Federal Reserve in December.
Bank Negara Malaysia’s (BNM) enforcement of ringgit’s trading in the non-deliverable forwards (NDF) market has spooked the market that more new capital controls will be implemented. The central bank denies the speculation and said it was only reinforcing the current ruling over offshore trading of the ringgit.
Finance Ministry officials have also denied more controls will put in place to stem ringgit ’s volatility. Speculative activities have been cited for the ringgit’s depreciation.
Traditionally, a currency’s depreciat ion wi ll boost exports due to the cost competitiveness in the international markets. Inbound tourists also choose countries with better conversion rates.
However, an economist who declined to be named, said these projections are unlikely to happen because ringgit’s exchange rate against its trading partners has not changed significantly.
“The exchange rate against other trade partners has not moved much. So, there is no way that we can capitalise (on the depreciation),” the economist said.
“It’s totally on the US dollar and the pound sterling. Apart from that, almost every other country has dropped,” the economist said.
Asian Strategy and Leadership Institute senior policy analyst Jordan Heng-Contaxis said strong economic fundamentals are not the only factor that contributed to the country’s fiscal stability.
“Malaysia’s economic fundamentals are fairly healthy by international standards. A lot of the analyses of the recent ringgit decline have so far blamed post-US election volatility and uncertainty on what a Trump presidency will mean,” Heng-Contaxis said.
“However, uncertainty surrounding Trump’s election should not be negatively influencing the ringgit like this,” he added.
Heng-Contaxis said the government should work on the institutional level to improve governance standards and instill the necessary confidence in the market.
He said investors are seeking other Asean markets with greater growth prospects such as Indonesia. “
Clearly they (investors) can no longer solely rely on strong fundamentals alone,” Heng-Contaxis added.