PETALING JAYA: The ringgit weakened to hit the 4.4 level against the US dollar yesterday, sliding 0.92% to a three-year low of 4.4095 as Malaysia battles the Covid-19 outbreak in its second day of the movement restriction order.
The currency has been on a losing streak since it was traded at 4.2295 last Wednesday. Year-to-date, it has depreciated 7.8%.
HLIB Research said the ringgit weakening is not just happening to Malaysia alone, but it is also seeing currency depreciation in other emerging markets.
“We’re not the worst one out there. Countries like Mexico is experiencing a far worst (currency) depreciation than us,” an economist from the research house told SunBiz.
“It’s not a good sign that it (ringgit) is weakening because it’s a risk-off (situation) and foreigners are withdrawing their funds from Malaysia as what they’re doing with the rest of the world. But having a flexible exchange rate, a weakening ringgit is actually one of the shock absorbers that Malaysia has as a tool.”
The economist explained that a weaker ringgit helps to offset the fall in domestic demand by encouraging exports, although exports are now also negatively hit by weaker demand globally.
“The best thing that Bank Negara Malaysia can do is to manage the pace of the depreciation and we just have to ride through it. The effect on the economy is not just weak ringgit, it’s everything – Covid-19, weak global demand and risk-off sentiment. Weak ringgit is part of the equation.”
The economist noted that the ringgit is not likely to weaken to 5.00 against the greenback at this point as the country has enough international reserves. Even during the 1997 Asian financial crisis, it did not weaken to 5.00.
“Weakening is the trend (as with all emerging market currencies) and is part of the risk-off sentiment. Fundamentally it doesn’t mean that there is something wrong with Malaysia.”
An economist with RHB, meanwhile, expects the ringgit to rebound to 4.3500 by year-end.
“At the moment there is slight depreciation. Regional currencies also fell drastically to record lows – not a norm because it (Covid-19) is a special case.”
