Ringgit likely to weaken further after breaching 4.40 against USD: analysts

WHEN Laura Lim, a 38-year-old Malaysian who has worked in Singapore for the past 8 years, heard news of the ringgit depreciating to RM3.19 to the Singapore dollar this week, she had mixed feelings about where the Malaysian currency was headed in the coming months.

The quantity surveyor said: “On the one hand, I am happy as I have more to spend when I go home during the weekends; on the other, I’m also worried that my brother’s business in Johor Bahru will be affected by the increasing costs.”

The ringgit has been trading lower against the US dollar since the start of this year, in anticipation of US interest rate hikes to stabilise inflationary pressures. On May 19, the ringgit weakened past the RM4.40 mark against the greenback for the first time since the onset of the Covid-19 pandemic in March 2020. 

On Tuesday (May 24), the Singdollar continued to reach another record high of just past RM3.20, and then eased slightly to RM3.1953 at 6 pm on Wednesday. In the year to date, the ringgit has depreciated by nearly 3.5 per cent against the Singdollar.

Peter Chia, senior foreign exchange strategist of global markets and economic research at United Overseas Bank, expects further weakness in the Malaysian ringgit against the US dollar for the rest of 2022.

“This is alongside a broad-based Asia currency weakness as the US Federal Reserve presses on with its aggressive rate hikes to combat inflation,” he said. “Sentiments in the region are also expected to be weighed by a slowing Chinese economy and a weakening Chinese yuan.”

Chia expects the ringgit to weaken to RM4.41 in the third quarter of this year,, and to RM4.45 in the final quarter.

“In the near-term, the ringgit may find itself some breathing space with the US dollar/ringgit currency pair consolidating just under RM4.40,” he added. “This comes as the US dollar started to pull back after registering strong gains since the start of April 2022.”

Within the region, the Singapore dollar continues to strengthen, especially against the ringgit. This has already spurred queues at money changers in Singapore in recent days.

Bank Islam Malaysia’s chief economist Mohd Afzanizam Abdul Rashid expects the Singdollar to continue to strengthen, thanks to its monetary policy centred on managing the trade-weighted exchange rate and better-than-expected economic growth.

The republic’s economy expanded by 3.7 per cent year on year in the first quarter of 2022. Full-year growth is projected to range between 3 per cent and 5 per cent.

“Unlike Malaysia and most of the countries, which are using interest rate as a (monetary policy) instrument, Singapore allows Singdollar to appreciate as a tool to tighten its monetary policy. Hence, it provides better support to the Singdollar,” he said.

However, he noted that Malaysia’s central bank has never set an exchange-rate target and ringgit movements are currently determined by market forces. He does not expect Bank Negara Malaysia to intervene on the currency movement, as “it has not reached a worrying level”.

“Currency is one kind of shock absorber on the country’s economy.,” he added. “A weaker ringgit will push up the cost of imported goods, which will force the manufacturers or business owners to rethink their strategies — either by looking for cheaper options or reducing imports.

“As the ringgit depreciates, it will make our exports and tourism sectors more attractive. Hence, this will increase the country’s trading surplus.”