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Decline of the ringgit: Amid strain on people, businesses, is there hope for a rebound?

After the currency hit a 26-year low, is the only way up? The programme Insight finds optimism and doubt in equal measure as it looks at factors behind the ringgit’s fall and the ripple effects.

Decline of the ringgit: Amid strain on people, businesses, is there hope for a rebound?
Malaysia’s currency slipped to RM4.8 against the United States dollar in February.
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KUALA LUMPUR: As food prices rise, freelance cameraman Shunmugam Karuppannan is one of many Malaysians feeling the pinch.

These days, the 50-year-old thinks twice about taking his family to a restaurant, even if they ate out only once a month previously.

The ringgit has fallen, and as Malaysia imports around 60 per cent of its food, this has translated into imported inflation, to the extent that it has affected his nine-year-old daughter at school.

“Every day I’d give her RM2. And she didn’t tell me anything about (prices being) hiked up in the canteen,” he recounted.

After a few days of her skipping meals, he “got to know that the price, RM2, of mee hoon or whatever … had gone to RM3”.

The impact of the depreciating ringgit extends across income brackets. Elliza Abdul Rahim, 54, who belongs to the M40 group, or the middle 40 per cent of income earners, has also become more cost-conscious.

Elliza Abdul Rahim is a partner in communications consultancy Essential Business Malaysia.

The communications practitioner now prefers using public transport over driving, as it helps save on car maintenance costs and petrol. The latter, for example, costs her “around RM56 (to) RM60 each go”.

Both Shunmugam and Elliza also stretch their budgets by opting for local goods instead of foreign brands.

In a similar vein, local suppliers such as clothing manufacturer Domain and Range have encountered increased expenses when purchasing intermediate inputs from abroad.

The company produces sportswear and babywear at its factory in China before distributing them to the Malaysian market. However, the ringgit has depreciated against the renminbi, from RM1 to 1.6 yuan in 2022 to RM1 to 1.49 yuan this February.

Chief executive officer Chua Hunt disclosed that he had to fork out an additional RM1 million (S$290,000) to cover production costs. Expressing concern over the ringgit’s decline, he said: “If it goes down more, I’m afraid that we’d incur a loss.”

Chua Hunt said his company’s imports are 10 per cent more expensive owing to the ringgit’s slide.

At the start of the fourth quarter last year, the ringgit was among Asia’s worst-performing currencies, plunging 6.9 per cent against the United States dollar over the year.

This trend persisted into the new year, ringing alarm bells with a 26-year low of RM4.8 against the greenback in February.

The ailing currency has left many individuals and businesses grappling with soaring costs, while also fuelling brain drain and eroding faith in the government.

Is there hope for a ringgit recovery? The looks at the factors driving its decline, the impacts felt among Malaysians and the question of whether a comeback is on the cards.

WATCH: Why Malaysia’s currency has been falling — Can the ringgit recover? (46:49)


While a struggling currency typically indicates a drop in exports or foreign investment, the Malaysian government contends that the weak ringgit does not signify a weak economy. The experts tend to agree.

“If you look at our balance of payments, we’re still experiencing a current account surplus,” said Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid. “And I think the government is quite committed to reducing the budget gap.”

In January, Malaysian exports grew by 8.7 per cent year on year, halting a 10-month decline. Total trade surged 13.3 per cent to RM234.7 billion in the same month.

Likewise, in February, the Malaysian government reported that approved investments last year had reached RM329.5 billion, the highest in the country’s history.

With these signs pointing to a rosy economy, what accounts for the ringgit’s downturn, then? Experts pin the blame on monetary policy.

More specifically, the increase in interest rates in the US is a “major factor” driving the ringgit’s depreciation against the US dollar, cited Teo Wing Leong, who heads the University of Nottingham Malaysia’s School of Economics.

The US Federal Reserve has held its benchmark rate at 5.25 to 5.5 per cent since last July, whereas Malaysia has a 3 per cent interest rate.

“As a result, capital will flow out (of) Malaysia to the US, … causing the ringgit to depreciate,” said Teo.

Indeed, the Fed has hiked interest rates 11 times since 2022 to curb US inflation, which has been slow to recede from a peak of 9.1 per cent in 2022.

The headquarters of the Board of Governors of the Federal Reserve System, in Washington D.C.

With high interest rates, investors get better returns from instruments such as US treasury bonds. This boosts demand for the greenback, thereby increasing its relative value.

Malaysia’s central bank, meanwhile, has resisted adopting such a strategy as it fears consumers and businesses could be overly burdened by borrowing costs, which could lead to lower consumption and investment demand.

The central bank holds that inflation is manageable without further interest rate hikes. Malaysia’s headline inflation rate last year was 2.5 per cent, lower than the global average of 6.8 per cent and Singapore’s 4.8 per cent.

Furthermore, the bank has proposed an inflation range of 2 to 3.5 per cent this year, with first-quarter inflation — at 1.7 per cent — already falling below that.

That is not to say, however, that none have felt the pinch.

With food prices rising and good jobs harder to come by because of his age, Shunmugam Karuppannan is feeling the pinch.


As for the ringgit’s decline against the Singapore dollar, one of the reasons is the difference in currency management between the two countries, cited Mohd Afzanizam.

Singapore’s monetary policy, using a managed float system, allows its dollar to fluctuate within a band pegged to a basket of currencies. The Monetary Authority of Singapore manages undulations using its foreign reserves, keeping the dollar’s value within the band.

Malaysia also adopts a managed float but without any currency peg; for one thing, it lacks the forex reserves that would be needed.

“I’d say the Malaysian government can’t do the same as Singapore because our economic structures are different,” added Teo. Singapore operates primarily in higher value-added sectors, while Malaysia’s export sectors are mostly at the “low- to medium-skill level”, he cited.

“If you allow (Malaysia’s) exchange rate to become too strong, … the low to medium value-added segment may lose competitiveness.”

Associate Professor Teo Wing Leong is the head of the School of Economics, University of Nottingham Malaysia.

But maintaining export competitiveness comes at a cost. There are worries that a declining ringgit could speed up Malaysia’s brain drain as workers seek better pay in stronger currencies.

Out of 1.86 million Malaysians who have migrated as at 2022, there are 1.13 million living in Singapore. And recently, Singapore’s recruitment agencies have seen 30 to 50 per cent more enquiries from Malaysian workers.

Today, the exchange rate is S$1 to about RM3.48, after the dollar gained 6 per cent against the ringgit last year, when the average rate was S$1 to RM3.396.

“The foreign exchange (rate) between Malaysian ringgit and Singapore dollar … is one of the main motivations for (Malaysians) to come over,” said information technology project manager Calvin Ong, 37, a Malaysian working in Singapore.

WATCH: Malaysia’s brain drain, the ringgit, inflation — Plus an upside for expats (8:07)

He also raised concerns over Malaysia’s race-based politics permeating into the workplace back home in favour of the Malay majority.

In that regard, however, Margarita Peredaryenko of Emir Research suggested the race-based push factor may be waning. She cited a Department of Statistics Malaysia study in 2022, which found that Malays were not too far behind the Chinese in emigrating.

Among the attractions of working abroad for them were “equal opportunity, better career prospects in terms of promotion as well as breadth and depth of job market, better pay, perks … and so on”, she said.

At the same time, a weak currency could deter immigration, especially if expatriate salaries are denominated in ringgit.

In the case of technologist Pedro Custodio, he came to Malaysia two and a half years ago to tap the growing Asian markets, “before the ringgit went into this downward cycle”.

“If the currency continues to decrease, although you negotiated a certain salary, in the end you start receiving less and less,” said the 47-year-old. “If I’d known, I’d have made … different provisions regarding my salary.

For example, when an expat moves into a country, normally there’s a parity exercise between what salary you’re making in whatever country you’re coming from versus the salary you’re going to receive.”


While the ringgit has fallen to its lowest since the Asian financial crisis, the government is sanguine.

The finance ministry has said the ringgit’s weakening does not reflect Malaysia’s positive economic fundamentals and prospects.

“Far from what we’ve experienced during the Asian financial crisis, the banking system is very healthy,” said Lee Chean Chung, the communications director of Parti Keadilan Rakyat, which is part of the ruling coalition.

In fact, the finance ministry expects the ringgit to recover this year. The central bank — Bank Negara Malaysia — had already called on government-linked companies and investment companies to repatriate their foreign earnings to arrest the currency’s decline.

And the move appears to have borne fruit. It was reported that between Feb 26 and April 8, the ringgit was the only regional currency that strengthened against the greenback.

“It’ll take some time, but we do see signs of some recovery,” Lee maintained. “At the same time, some businesses are also attracted by Malaysia and continue investing, for instance, in Penang’s semiconductor (sector).”

Parti Keadilan Rakyat communications director Lee Chean Chung is also Member of Parliament for Petaling Jaya.

There is, however, scepticism on the ground. According to pollster Merdeka Centre, 60 per cent of 1,220 respondents in an October poll felt that the country was heading in the wrong direction, with economic concerns driving their response.

Nearly 80 per cent of all respondents cited the economy — including the weak ringgit — as the country’s biggest problem.

The lack of confidence in the government, said Bersatu Youth chief Wan Ahmad Fayhsal Wan Ahmad Kamal, “doesn’t help” to bolster the ringgit’s value.

A soft ringgit is not without its advantages, however. For instance, it can appeal to those expats paid in their home country’s currency, as their salary and savings stretch further when converted into ringgit.

In global expat community InterNations’ survey last year, Malaysia was even ranked as the best Asian country for expats.

Affordability also helped propel Malaysia into the top ranking among South-East Asian travel destinations last year. The country recorded almost 29 million visitor arrivals — a 100 per cent increase from 2022 — with an expectation that the upward trend will continue.

Moreover, with the ringgit’s lower value, Malaysian products have become more cost-competitive on international markets. Still, Teo urged the country to “work harder to gain efficiency” for a more competitive edge.

Malaysia must move away from an over-dependence on low-cost labour, said Lee, and strive for an economy geared towards high-income and robust growth.

Watch this episode of . The programme airs on Thursdays at 9pm.

Source: 鶹ý/dp


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