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Ringgit hits 9-year low

Tuesday, June 9, 2015 - 05:50
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Malaysians, in despair, have a new name for their currency - the shringgit.

Kuala Lumpur

MALAYSIANS, in despair, have a new name for their currency - the shringgit. Already one of the worst performers in the past year, the currency touched a nine-year low of 3.767 to the US dollar on Monday, after the US posted stronger-than-anticipated employment data on Friday and re-ignited talk of an impending rate hike by the Federal Reserve.

Although other Asian currencies have also weakened against the greenback, the ringgit is - at current levels - just a heartbeat away from the 3.8 level it was pegged at after the Asian financial crisis of 1998.

Nearly everyone is hurting. Even before the introduction of a 6 per cent goods & services tax (GST) in April, businesses had expressed greater concerns about the falling ringgit than the 6 per cent consumption tax.

That the ringgit has weakened by nearly another two per cent since the introduction of GST is making products and services even more costly.

In the year to date, the currency has lost nearly 8 per cent against the greenback, and, with the 3.80 mark in clear sight, appears to be marching towards a forecast 4.00 by year-end.

More pressure on it can be expected in the coming weeks if Fitch Ratings downgrades Malaysia's sovereign rating to BBB from A-.

Despite GDP growing by a resilient 5.6 per cent in the first quarter, sentiments remain downcast as the coming quarters are expected to be tough.

April's trade data showed exports contracted by a worse-than-expected 8.8 per cent - against a consensus of 5.5 per cent - prompting AffinHwang Capital to review the current account surplus. It expects the surplus to narrow to RM35 billion this year or 3.2 per cent of gross national income (GNI), from RM49.5 billion or 4.8 per cent of GNI in 2014. But it pointed out the downside risks to its forecast had increased, owing to lower LNG prices.

While the weak ringgit could boost electrical and electronic (E&E) exports, demand in some of Malaysia's key markets such as China, Japan and Asean is softening, as economies are growing at a slower pace.

Net outflows from portfolio investments also accelerated in May.

On the home front, consumers and businesses are tightening their belts; prices have risen significantly because the ringgit is buying far less than before.

Transaction volumes for bigger ticket items such as cars or homes have fallen. Consumers are eating out less and cooking more at home because many restaurants impose a 10 per cent service charge along with the 6 per cent GST; in order to keep their prices steady, some restaurant owners have taken to shrinking portions.

But the issue now arguably weighing most on sentiments is the debt-laden 1MDB, its imbroglio muddying both the political and economic landscape. Already, the state-owned investment company's debts stand at RM42 billion, but the administration of Prime Minister Najib Razak added to the confidence crisis with its lack of transparency in its accounts and transactions.

The credibility of Mr Najib, also the finance minister and chairman of 1MDB's advisory panel, took another significant dent by his having opted out of what was to have been a "nothing-to-hide" public dialogue on 1MDB last Friday. The event was cancelled at the last minute on the advice of the police on the grounds that the event could get out of hand because of the presence of former prime minister Mahathir Mohamad.

Bent on removing Mr Najib because of 1MDB and other policies, Dr Mahathir, 89, is seen to have discredited Mr Najib by simply having been there; Mr Najib, on the other hand is seen to have shied away from the event because he has no real answers. Over the weekend, the Edge business weekly contended that 1MDB had lost between RM18 billion and RM25.5 billion over its five-year existence.

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