Is the ringgit bottoming?

THE Malaysian ringgit has slumped towards the US greenback to a stage not seen because the Asian monetary disaster – 1 / 4 of a century in the past. Against the Sing greenback, it has additionally hit recent lows repeatedly over the previous 12 months.

As the beleaguered foreign money headed dangerously near its all-time low of 4.885 towards the USD in January 1998, Bank Negara Malaysia (BNM) governor Abdul Rasheed Ghaffour issued an announcement blaming “external factors”.

“The current level of the ringgit does not reflect the positive prospects of the Malaysian economy going forward,” he mentioned.

To be truthful, the ringgit isn’t the one underperforming Asia foreign money – however none has suffered such a extreme retreat.

BT speaks to analysts to search out out what’s inflicting the ringgit’s slide and what’s in retailer for it within the close to to medium-term:


Some components battering the foreign money:

  • A powerful buck from strong US economic system
  • Interest-rate hole with US
  • Weakening commodity costs
  • Rising exterior debt
  • Exports slide and the China issue

Maybank head of FX analysis Saktiandi Supaat mentioned the USD is being bolstered by the higher-for-longer price setting. 

In the close to time period, the buck can also be boosted by the uncertainty of when the Fed will begin rolling out price cuts, mentioned Michael Wan, MUFG’s senior foreign money analyst.

“The Fed certainly wants to cut rates as inflation has shown progress… but the resilient US economy thus far gives them space to be slow and methodical in doing so,” he mentioned. “High US interest rates have also increased the relative returns of US assets against Malaysia assets, and at the margin increases some depreciation pressure on the ringgit.”

“Inflation in Malaysia is relatively benign at 1.5 per cent, compared to concerns of inflation in the US where inflation was at 3.4 per cent,” he mentioned, stating that this has led to USD-MYR buying and selling larger.

In addition to those exterior components, Bank of Singapore senior foreign money strategist Sim Moh Siong mentioned tailwinds from elevated tourism and international direct funding have but to offset Malaysia’s rate of interest drawback towards the US to materially carry exporter conversion developments.

The general bleak world outlook, in addition to Malaysia’s weak progress numbers, has additionally weighed on the ringgit, analysts mentioned.

“Though the January export numbers show a rebound, exporters are holding back more of their foreign currency receipts to take advantage of the higher yield,” mentioned Khoon Goh, head of Asia analysis at ANZ.

In specific, China’s sluggish progress and poor sentiment has resulted in a weaker Chinese yuan, which has in flip added depreciation stress on the ringgit. China has been Malaysia’s largest buying and selling companion since 2009, with a 17.1 per cent share of Malaysia’s whole commerce.

“We note that the Malaysia ringgit followed the movements of the Chinese yuan more closely compared to other Asian counterparts, especially in the weakening phase of the latter last year,” mentioned UOB senior FX strategist Peter Chia.

At the identical time, however uncertainties within the Middle East, each palm oil and oil costs have been comparatively weak, MUFG’s Wan mentioned.


To perceive the ringgit’s journey, slightly historical past could also be instructive.
In 1998, on the peak of he Asian monetary disaster, a number of Asian currencies went into free fall. Then prime minister Mahathir Mohamad took the shock determination to impose capital controls and pegged the ringgit at 3.80 to the US greenback.

Singapore was then the primary offshore centre for ringgit-based buying and selling and deposits. All ringgit funds held offshore needed to be repatriated to Malaysia inside one month, or else be declared nugatory.

The buying and selling of Malaysian shares on the Central Limit Order Book (Clob) – the secondary market in Singapore that traded Malaysian shares – was additionally frozen, leading to big losses by 172,000 Singaporean buyers.

Though described by many as “economic heresy”, the transfer did stabilise the ringgit and Malaysia solely ended the peg in 2005. With capital controls not thought of loopy, the thought has resurfaced in current instances amid the ringgit bashing. Late final 12 months, Mahathir steered reviving the foreign money peg.

But analysts imagine circumstances are totally different now.


  • Greenback pullback
  • Global delicate touchdown
  • Momentum in Malaysian economic system
  • Tourism restoration, higher exports
  • Easing of world inflation

“We expect the USD to weaken once the US Federal Reserve eventually cuts rates, providing a respite for the ringgit,” mentioned ANZ’s Goh. “Some of the drivers of ringgit weakness are temporary,”

Maybank’s Saktiandi mentioned that is in step with his base case situation for the 12 months: a worldwide delicate touchdown and a gradual softening of the USD.

UOB’s Chia added that the ringgit’s hyperlinks with the yuan is a double-edged sword that will act in its favour this 12 months, as he expects the yuan – and therefore the ringgit – to stabilise and subsequently rebound this 12 months.

The much-anticipated semiconductor restoration may additionally give the ringgit a lift, since Malaysia can also be a key exporter of manufactured items, together with electronics, mentioned MUFG’s Wan.

Early this week, Malaysia’s Second Finance Minister Amir Hamzah Azizan advised state information company Bernama in an interview that the nation was “reacting to a very different scenario and a very different financial capacity of the country” again in 1998.

“Today, when you look at the country’s reserves, the debt exposure and the financial liquidity in the market, Malaysia does not need to peg its currency,” he mentioned.

“Moreover, the Fed has signalled that they are going to end the interest rate hikes, so let the currency adjust back as these elements go through.”