Ringgit rises against US dollar but don’t jump for joy
PETALING JAYA: In the past year, the ringgit has strengthened against the US dollar – but it is not all good news as the Malaysian currency has actually weakened against a basket of other currencies.
Economists Carmelo Ferlito and Shankaran Nambiar say the ringgit strengthening against the greenback is down to the situation in the US, which has been hard hit by Covid-19 and political turmoil.
“I think that the strengthening reflects more American weakness than Malaysia’s strength per se,” said Ferlito, CEO of the Center for Market Education.
He said the historical data of the past year showed that the ringgit performed worse after the fall of the Pakatan Harapan government, which is also when Covid-19 cases began surfacing.
Ferlito said that in the past year, the ringgit weakened against other currencies including the euro, Australian dollar, British pound, Singapore dollar and even the Thai baht.
“The different ‘behaviour’ of the ringgit towards the US dollar and other currencies tells us that Malaysia needs to look into the fundamentals of the economy to ensure we are on the path to a sustainable recovery.
“It also emphasises the need for political stability, not by suspending democracy but quite the opposite,” he said, adding investors will have reservations about pumping money into a country where too much power is vested in the executive.
Ferlito said that it was important to have a strong currency to attract foreign investors, which will in turn create growth and job opportunities.
“A strong, stable currency preserves the value of investments. Imagine you are buying a home, you would want to buy one that has a stable value and can grow, that way your investment will increase over time.”
Nambiar, of the Malaysian Institute of Economic Research said current conditions, including the spike in Covid-19 numbers and the state of emergency will dampen the ringgit.
“Investors will adopt a wait-and-see attitude, during which period the ringgit might take a slide.
“But the prospects for the ringgit are good, especially since it is one of the most undervalued currencies in the region and because of favourable commodity prices.”
Nambiar said there is value in the ringgit which can be explored once there is more clarity on governance issues and measures to control Covid-19. - FMT
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