The Ringgit Is Declining. Should Malaysians Be Concerned?

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You may have read that the ringgit has been depreciating against the US dollar, reaching an all-time low of RM4.73 per dollar as recently as October 2022.

For many of us, the topic of foreign currency can seem, well, foreign. Due to its global economic implications, it can be a tough issue to wrap our heads around. The first thing we would think of when we hear about the ringgit declining is that our overseas holidays are going to cost a whole lot more, which is true.

But should we be more concerned about this? And what should the government do to prevent things from becoming worse? We talked to experts, and this is what we found.

Currency exchange prices are a result of the demand and supply of a particular currency relative to another. What affects this level of demand and supply will be based on a combination of factors such as interest rates, inflation, and political and economic conditions.

Research Director at Bait Al Amanah, Benedict Weerasena told SAYS that the main reason for the declining Ringgit is due to the interest rates spikes in the US. 

For investors, this means that investing their money into the US economy will provide a higher return relative to other countries, leading to an influx of money coming into the US which pushes up its price.

"Additionally, many investors feel that the US dollar is a safer currency to hold in a world marked by uncertainty fueled by the Russia-Ukraine conflict and weakness in the global growth momentum," he added.

"First, it is important to clarify the fact that the ringgit is declining mainly against the US dollar, and not against all other currencies. Malaysia is not alone, and many other currencies in the region have also fallen against the dollar," Benedict explained.

In fact, the ringgit has actually been strengthening against the other currencies such as the Japanese yen, South Korean won, the UK's pound sterling, the New Zealand dollar, and even the Euro.

"But rest assured that even if the ringgit worsens, Malaysia is highly unlikely to experience hyperinflation. This is a result of current policies which maintain price stability and mitigate cost pressures, such as the price controls on essential items and fuel price ceiling," he noted.

Having a weaker currency does not affect everyone equally, as it depends on which side of the equation you fall on. For businesses that export their products overseas, their prices will be more competitive, and this can increase their revenue.

"Another positive outcome is a strong possibility that Malaysian consumers switch to demand local products more because imported goods and services are becoming relatively more expensive. This will in turn boost domestic economic growth," Benedict added.

Benedict explained that there isn't much that the government can actually do about the ringgit's current performance because it is highly dependent on external factors. Instead, the government should focus on maximising Malaysia's potential as a place of investment.

"In addition to a clear and sound economic direction, political stability post GE15 will be a key factor in boosting regional competitiveness," he shared.

Datuk Seri Johari Abdul Ghani also believes that political stability will be the key factor in improving Malaysia's investment potential and overall economy.

"We must be a place where investors feel safe to put their money in. We may tell everyone that we are stable, but in the eyes of investors, when they see that we have changed our prime minister three times in the span of four years, this does not send the right signal to them," the former Second Finance Minister told Free Malaysia Today during a recent interview.