The ringgit extended declines to its lowest level since the Asian financial crisis, prompting Malaysia’s central bank to say it doesn’t reflect the improving outlook for the economy.
The local currency briefly slipped past 4.8 against the US dollar on Tuesday, its weakest level since reaching an all-time low of 4.8850 in 1998. The ringgit has slid by over 4% so far in 2024 as China’s sluggish economy hurts exports from Malaysia, adding to the currency’s losses from the previous three years.
“BNM is of the view that the current level of the ringgit does not reflect the positive prospects of the Malaysian economy going forward,” Bank Negara Malaysia Governor Abdul Rasheed Ghaffour said in a statement Tuesday. “The recent performance of the ringgit, similar to other regional currencies, has been influenced by external factors.”
Ringgit Falls to the Lowest Since 1998 Against US Dollar
A rebound in external demand and strong domestic spending will drive growth this year, Abdul Rasheed said. Malaysia’s exports have shown “steady” improvement since the fourth quarter, and the International Monetary Fund predicts global trade will pick up this year, he said. The nation’s exports in January grew by 8.7% year-on-year, ending 10 consecutive months of contraction.
The tourism industry has “recovered strongly” and arrivals in 2024 are likely to exceed the pre-pandemic level of 26 million, the governor said. Investment momentum has picked up with the implementation of approved projects both in the private and public sectors, he said.
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“Reflecting these positive developments and the government’s commitment to implement structural reforms and the expected lowering of interest rates in advanced economies, most analysts are forecasting for the ringgit to appreciate this year,” Abdul Rasheed said.
Traders will be watching the latest inflation print due Friday, which will give clues on Bank Negara Malaysia’s ability to maintain interest rates.
The ringgit closed 0.2% lower at 4.7987 per US dollar in Kuala Lumpur.
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The currency is set to strengthen on the Federal Reserve’s potential interest-rate cuts and in the absence of “material geopolitical events,” Malaysia’s second finance minister, Amir Hamzah Azizan, said in an interview with Bernama news agency.
The country doesn’t need to peg its currency to the dollar, as it did during the Asian financial crisis, the minister said.
“Today if we look at the reserve basis of the country, if we look at the debt exposure of the country, if we look at the financial liquidity that’s actually in the market, Malaysia doesn’t need to peg its currency,” he said.
Looking ahead, whether the ringgit will eventually fall to a record low against the greenback will also depend on the trajectory of the world’s reserve currency. While the ringgit is likely to sustain a drop beyond 4.80 in the near-term, it is doubtful that it will breach its record low, as US dollar strength is expected to wane, said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore.
Malaysia’s economy grew slower-than-expected in the three-months through December as exports to China fell. Manufacturing activity remained weak, with January’s Purchasing Managers’ Index coming in at 49 — making it 17 straight months below the 50 threshold that divides expansion from contraction.
Neighboring Thailand has similarly seen disappointing growth, with fourth-quarter gross domestic product undershooting economist estimates. That has prompted Thai Prime Minister Srettha Thavisin on Monday to renew calls for an emergency rate cut from the Bank of Thailand. Investors have priced-in more dovish moves from the BOT, resulting in the baht underperforming all emerging Asian peers so far this year.
Malaysia’s growth trajectory for 2024 is still fraught with risks both externally and at home. Foreign bond outflows amounting to US$382 million in January, the largest in five months, also reduce support for the local currency.
