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Economists differ on impact of falling ringgit
calendar08-09-2022 | linkFree Malaysia Today | Share This Post:

07/09/2022 (Free Malaysia Today), Petaling Jaya - The ringgit sank to a 24-year low against the US dollar today, but economists have expressed mixed views on its impact on the Malaysian economy and the people.

One economist said most people would not feel the effect given that the economy was still in good health while another felt that while the fundamentals might still be strong, the manufacturing sector could get the brunt of the negative impact.

Geoffrey Williams of the Malaysia University of Science and Technology, the more optimistic of the two, said a higher US dollar was irrelevant to most Malaysians, unless they were travelling abroad, as they mostly spent on local products.

He told FMT Business that small and medium-sized enterprises (SMEs) were the same since they mainly focused on the local market and conducted trade in ringgit.

“For larger companies and exporters, a strong dollar makes exports cheaper. On the one hand they lose revenue, but on the other, they sell more. So it’s a balance and at the moment exports are strong,” he said.

“Of course, it also makes imports more expensive so this has an effect on prices for businesses that rely on imported parts. As costs rise, it might be passed on to consumers buying foreign products. However, inflation is under control at the moment,” he added.

Shankaran Nambiar, a senior research fellow at the Malaysian Institute of Economic Research, described Malaysia’s situation as “interesting” given its strong economic fundamentals.

“Employment is looking good, production has picked up, foreign direct investment is regaining lustre, and exports are blazing as never before,” he told FMT Business.

However, this is where the views of both economists diverge. Nambiar cautioned that “there probably are issues of confidence lurking in the background” while Williams saw it as “more of a US story than a Malaysian story”.

After all, Williams noted, there was little Malaysia could do except to focus on its domestic fundamentals.

Yesterday, the ringgit opened at its lowest level versus the US dollar since the Asian financial crisis back in 1998.

At 9.01am, the local currency fell to 4.5010/4.5035 against the greenback. The currency traded mixed through the day, but closed even lower at 4.5020/5040.

Williams expected sectors like oil and gas, palm oil, as well as electrical and electronics to be most affected, though tourism might benefit more from the lower ringgit. “Financial sector firms normally make money whether the ringgit goes up or down so that is a balance,” he said.

However, Nambiar warned that with manufacturing companies struggling to acquire new technology, a weak ringgit would hinder long-term capital expansion and growth.

“On top of the high cost of imported intermediate products because of global inflation, now companies will have to take the ringgit factor into consideration,” he told FMT Business.

“If the ringgit has a negative impact on the manufacturing sector, it is going to play out in terms of depressed growth and weaker job creation going forward,” he said.

While Nambiar called on the relevant authorities to “do what they can” to tackle the weak ringgit, Williams said they “must not do anything” as it would be “dangerous” for Malaysia to chase the dollar.

Using the overnight policy rate (OPR) as an example, Williams said raising it too much would increase credit costs and make life harder for people and businesses, thus slowing down the economy.

“Monetary policy cannot affect exchange rates systematically and trying to do that is very dangerous to economic stability,” he added.