Malaysians are now getting less bang for their buck, compared to early this year, as the value of their ringgit has depreciated against most major currencies in the world.Against the widely perceived safe-haven currencies, US dollar and yen, for instance, the value of ringgit has fallen by about 2.3% and 8.4% year-to-date, respectively. Against other major currencies, the value of ringgit year-to-date has depreciated by around 3.4% against the British pounds; 6.7% against euro; 3.1% against the Singapore dollar; 2.6% against the Australian dollar; and 6.1% against the renminbi or yuan.
But maybe the depressed ringgit could spell some good news to local exporters, as the value of their goods and services will now become more attractive and relatively cheaper to foreign buyers. This could help cushion companies’ overseas sales, which is a saving grace, especially at a time when international trade is expected to enter a slow and sluggish pace (if not falling off the cliff) because of the ongoing global economic uncertainties.
And perhaps, Malaysia will be able to draw more foreign tourists, as the weakness of ringgit has likely made the country a more affordable holiday destination to many. This presents a contrast to Malaysians with plans to travel to certain countries overseas, as the volatility of the ringgit, which will likely continue over the medium term, will likely give them less value for their money.
Amid the sovereign debt problems continuing to brew in the 17-nation eurozone and growing fears of a double-dip recession in the United States, economists believe the weakness of the ringgit against major currencies, especially the US dollar or greenback, will likely persist for at least the next few months.
It was just three to four months ago when the ringgit was seen strengthening, touching a record high of 2.939 against the US dollar on July 27, while its performance against other currencies were mixed. It has since lost about 6.8% to be trading at around 3.139 per US dollar on Thursday.
The weakening trend of the ringgit first became noticeable early last month, as the reversal of short-term foreign capital flows, driven by fear, accelerated between August and September. The unwinding of foreign investors’ position in Malaysia was well reflected in the plunge of local equity prices during that period.
To put that into perspective, recent data released by Bank Negara showed that foreign investors were net sellers of Malaysian equities in August and September, having liquidated about US$290.6mil and US$149mil, respectively, of their holdings in the country. And as a reflection of the huge capital outflows from the country, the central bank’s foreign exchange reserves fell sharply by US$5.3bil to US$131bil as at the end of September.
CIMB Investment Bank Bhd chief economist Lee Heng Guei explains toStarBizWeek that the volatile capital flows will remain the source of wild swings in the ringgit movement over the medium term.
But such predicament is not common only to Malaysia.
Asian currencies, save for the Chinese yuan and Hong Kong dollar, have all weakened against the US dollar quite significantly since the beginning of August due to capital outflows.
Greenback still reigns
For instance, the Indian rupee has fallen by more than 10% against the greenback in less than two months, while the South Korean won has fallen by about 9%, Singapore dollar by almost 6%, Taiwanese dollar by about 4.8%, Indonesian Rupiah by about 4.6% and Thai Baht by about 3.6%.
(Hong Kong dollar is pegged to the US dollar, while the Chinese yuan is traded in a managed-float system and face increasing US political pressure to appreciate at a faster pace. The value of the Chinese yuan has gained only by about 0.8% against the US dollar over the last two months and 3.5% since the beginning of the year. It is still deemed significantly undervalued against the greenback at current levels.)