The Malaysian ringgit has hit its lowest value since the Asian Financial Crisis with a 0.5% drop to 4.7703 per US dollar, representing the currency’s weakest performance since 1998.
Plagued by a growing rate differential with the US, Malaysia’s currency has emerged as the worst-performing in Asia this year.
Several factors have converged to inflict damage on the ringgit’s value. The global landscape, fraught with uncertainty due to the Israel-Hamas conflict, has seen investors flocking to the US dollar as a safe haven.
This, combined with the Federal Reserve’s hawkish stance stemming from robust US economic data, has put pressure on the Malaysian currency.
Furthermore, Malaysia has faced challenges on the economic front. The nation’s exports have suffered a seven-month decline, partly attributed to a slowdown in China, its largest trading partner.
The decision by Bank Negara Malaysia to halt interest-rate hikes at 3% since July has created a significant disparity between Malaysian and US rates, dissuading dollar-based investors from seeking ringgit-denominated assets.
The situation has been compounded by Malaysia’s rising inflation rate, currently at 2%, which erodes the rate spread. Government moves to reduce fuel subsidies may further fan the flames of inflationary pressures.
Bank Indonesia’s recent rate hike exemplifies the concern among policymakers over currency devaluation.
As Malaysia grapples with these economic complexities, the ringgit’s underperformance remains a point of concern. Experts suggest that this trend may persist, subject to potential unfavorable real rate spreads.
Policymakers must strike a balance between addressing economic challenges and maintaining macro and ringgit stability in the face of these risks.
