Ringgit likely to fall further, but there’s no cause for alarm
www.freemalaysiatoday.com
Economists say the value of the ringgit continues to fall only because it is dictated by the strong dollar narrative. (Bernama pic)
PETALING JAYA: The ringgit is likely to depreciate further, even breaching the 4.50 level, against the US dollar, but analysts have allayed fears that all is not well in Malaysia.
Bank Islam Malaysia Bhd chief economist Afzanizam Abdul Rashid said Malaysia’s fundamentals remain intact and its banking system is still robust.
“Given these factors, there is no problem with access to credit and that should help the country’s economy continue on its growth path,” he told FMT Business.
At the close of trading on Thursday, the ringgit settled at 4.44 against the greenback, a 27-month low. The currency has been depreciating steadily from about 4.20 in the past month.
In an interview with FMT Business last month, Afzanizam said the US would likely engineer a “soft landing” for its economy on expectations that a recession was looking closer to reality.
“With a greater demand for the greenback (following another rate hike this month), the currencies of other countries, including ours, will feel the negative impact,” he said today.
At its June meeting the US federal open market committee (FOMC) raised the interest rate by another 75 basis points (bps), taking it to the 1.5% to 1.75% range to rein in inflation. This was its most aggressive rate hike since 1994.
Afzanizam said the high inflation rate in the US – which came in at 9.1% in June, the highest since November 1981 – could force the US Federal Reserve to tighten its monetary policy further.
There already is speculation that the FOMC could raise the rate by another 100bps at its next meeting in September.
This, he said, could push the ringgit beyond the 4.50 resistance level against the greenback.
Nonetheless, he said, it is not dire yet for the local currency.
“Malaysia still has a lot to offer. We have a talent pool that is conversant in English as well as decent infrastructure such as ports, airports, expressways, railroads and electricity that make the movement of goods convenient,” he said.
His view is that the strong dollar narrative has been dictating the ringgit’s performance.
Afzanizam attributed the ringgit’s current movement to a “typical flight to safety” by investors given the heightened risk of a recession.
“But how much more the ringgit will depreciate depends on how aggressive the US Federal Reserve is in its efforts to put a cap on inflation.Sunway University economics professor Yeah Kim Leng attributed the ringgit’s fall to aggressive rate measures instituted by the US.
“This is likely to be temporary. Raising rates to correct inflation tends to overshoot its target and this could put pressure on the dollar as the world’s largest economy faces recession risks,” he told FMT Business.
In June, S&P Global Ratings put the risk of recession in the US at 40%, reflecting a larger spike in prices with an even more aggressive Fed policy heading into 2023.
Yeah pointed out that Malaysia’s nominal effective exchange rate has seen only a slight movement recently.
www.freemalaysiatoday.com
PETALING JAYA: The ringgit is likely to depreciate further, even breaching the 4.50 level, against the US dollar, but analysts have allayed fears that all is not well in Malaysia.
Bank Islam Malaysia Bhd chief economist Afzanizam Abdul Rashid said Malaysia’s fundamentals remain intact and its banking system is still robust.
“Given these factors, there is no problem with access to credit and that should help the country’s economy continue on its growth path,” he told FMT Business.
At the close of trading on Thursday, the ringgit settled at 4.44 against the greenback, a 27-month low. The currency has been depreciating steadily from about 4.20 in the past month.
In an interview with FMT Business last month, Afzanizam said the US would likely engineer a “soft landing” for its economy on expectations that a recession was looking closer to reality.
“With a greater demand for the greenback (following another rate hike this month), the currencies of other countries, including ours, will feel the negative impact,” he said today.
At its June meeting the US federal open market committee (FOMC) raised the interest rate by another 75 basis points (bps), taking it to the 1.5% to 1.75% range to rein in inflation. This was its most aggressive rate hike since 1994.
Afzanizam said the high inflation rate in the US – which came in at 9.1% in June, the highest since November 1981 – could force the US Federal Reserve to tighten its monetary policy further.
There already is speculation that the FOMC could raise the rate by another 100bps at its next meeting in September.
This, he said, could push the ringgit beyond the 4.50 resistance level against the greenback.
Nonetheless, he said, it is not dire yet for the local currency.
“Malaysia still has a lot to offer. We have a talent pool that is conversant in English as well as decent infrastructure such as ports, airports, expressways, railroads and electricity that make the movement of goods convenient,” he said.
His view is that the strong dollar narrative has been dictating the ringgit’s performance.
Afzanizam attributed the ringgit’s current movement to a “typical flight to safety” by investors given the heightened risk of a recession.
“But how much more the ringgit will depreciate depends on how aggressive the US Federal Reserve is in its efforts to put a cap on inflation.Sunway University economics professor Yeah Kim Leng attributed the ringgit’s fall to aggressive rate measures instituted by the US.
“This is likely to be temporary. Raising rates to correct inflation tends to overshoot its target and this could put pressure on the dollar as the world’s largest economy faces recession risks,” he told FMT Business.
In June, S&P Global Ratings put the risk of recession in the US at 40%, reflecting a larger spike in prices with an even more aggressive Fed policy heading into 2023.
Yeah pointed out that Malaysia’s nominal effective exchange rate has seen only a slight movement recently.
