by KEVIN WONG / pic by MUHD AMIN NAHARUL
THE ringgit which has shed 2.5% of its value against the greenback this year and has been exposed to the cruel global economic volatility, has outperformed most regional currencies.
Economist Prof Dr Barjoyai Bardai said the ringgit had only depreciated about 3% compared to regional currencies such as the New Taiwan dollar, Thailand’s baht and the South Korean won.
“The main reason the ringgit is weakening is due to the strengthening of the US dollar. The greenback has been doing well from the better balance of payments and influx of funds returning from abroad.
“The US government has also given tax incentives and attractive interest rates,” he told The Malaysian Reserve.
He said based on the current trend, the US dollar is expected to continue its rise against the ringgit.
The ringgit has lost about 40 sen from a high of around RM3.85 in April, but the Indian rupee had lost about 30% of its value against the greenback. The Turkish lira had also been battered. Malaysia’s neighbour, Indonesia, is also struggling as the rupiah plummeted against the US dollar to levels last seen during the Asian financial crisis of 1997/98.
In terms of the ringgit’s outlook, he expects the US dollar to continue to strengthen, and major currencies including the ringgit will be hit by the greenback’s rise.
“The ringgit is trying to jump out of the trend by projecting its fundamentals. As the crude oil prices strengthen, it helps the ringgit shift away from the general trend.”
He said much of the ringgit’s value would also be influenced by the performance of the country’s economic growth. “It is expected by the end of 2018, the real GDP would hit an average of 5%. If that can be achieved, we should see the ringgit buckling up,” he said. But Barjoyai warned that Malaysia must also prepare itself for a possible recession which could hit the global economy by the end of this year or early next year.
“If the recession comes sooner, we will definitely see a depreciation in the ringgit. We have to be cautious about the possibility,” he said, adding that the ringgit may experience a negative growth for two quarters next year.
He said ringgit’s depreciation in the future would not be due to Malaysia’s economy weakening, but due to external factors. He added that a recession would affect the US the most, driving down the currency of the world’s largest economy.
“As a result, the ringgit advances against the US dollar. In that sense, a recession may be a good thing,” he said.
Affin Hwang Asset Management Bhd senior portfolio manager Ahmad Raziq Ab Rahman said the ringgit has outperformed most regional peers this year.
“The ringgit has largely stayed resilient amid swelling currency within the emerging markets (EMs) such as the Turkish lira, Indonesian rupiah and the Philippine peso which have reached new lows.
“However, we expect the ringgit to weaken on the back of risk-off sentiment of EMs and as the US Federal Reserve continues its monetary policy tightening,” he said.
He said the ringgit is less correlated to oil prices over the past few years, of which any dip in oil prices would not impact the ringgit in a significant way.
(The article has been edited from clarity and correctness.)