PETALING JAYA: The ringgit slides against the greenback amid tensions in the Middle East as well as anticipation of the US Federal Reserve keeping interest rates higher for longer which has resulted in the strengthening of the US dollar.
The ringgit slid to 4.7800 against the dollar yesterday, nearing its low of 4.8053 on Feb 21, which was the weakest since the local unit’s record low of 4.8850 in 1997 following the fallout from the Asian financial crisis.
Over the weekend, Iran retaliated after Israel attacked its consulate in the Syrian capital Damascus on April 1.
Sunway University professor of economics Yeah Kim Leng said the immediate impact is largely indirect in the form of higher global uncertainties and global risk aversion characterised by flight to safety and safe haven especially to the US dollar.
“The ringgit is close to its weakest against the US dollar which has also strengthened due to recent changes in expectations that the Federal Reserve’s interest rate cutting cycle will begin later rather than sooner on the back of stronger inflation and job numbers,” he told StarBiz.
In a statement yesterday, Bank Negara said it is ready to support the ringgit and will ensure sufficient liquidity and orderly functioning of the foreign exchange market.
Meanwhile, the Securities Commission (SC) and Bursa Malaysia, in a joint statement on Sunday, said they had increased market monitoring and surveillance to ensure activities in the local capital market remain stable, fair and orderly.
They also noted that market fundamentals remain strong and the intermediaries are well capitalised.
Rakuten Trade head of equity sales Vincent Lau said the statements by the SC, Bursa, and Bank Negara reflected a coordinated effort to reassure the market amid heightened geopolitical uncertainties.“Earlier in the day, more than 1,000 counters were in the red. Towards market close, they recovered slightly.
“However, this is just a knee-jerk reaction to the situation in the Middle East, as investors seek refuge in safe-haven assets such as the US dollar and gold. It is not reflective of our fundamentals,” he said.
“Hence, both the ringgit and the market can rebound from the current decline. Nevertheless, this will take some time. If the conflict de-escalates and things stabilise, I am optimistic that our market will steadily recover,” he pointed out. Brent oil pricing did not jump following the conflict and was last traded at US$90 per barrel while gold price was last trading at US$2,375 at press time.
Althought an escalation in the conflict would detrimental to local and global markets, the resulting higher oil prices would support the ringgit.
“The Japanese yen is at a multi decade low against the US dollar.
“Hence, it indicates that we are not the only country which is seeing a weaker currency.
“Notably, the ringgit is outperforming its regional peers such as the South Korean won, Philippine peso and Taiwan dollar so far.
“The regional countries are not oil producing countries, hence they are seeing a more pronounced impact from the conflict,” he said.
Yeah noted that besides judicious use of reserves to stabilise the ringgit, other measures to shore up investor-confidence include strategic repatriation of export earnings and investment proceeds as done recently, but on a larger and coordinated scale.
“Other reassurances include the country’s strong fundamentals, record high foreign direct investment approvals and speedy implementation of projects,” he said.
Meanwhile, Centre for Market Education chief executive officer Dr Carmelo Ferlito said Bank Negara has a delicate mission. He pointed out that fiscal prudence is the necessary environment for monetary policy to be effective.
“In terms of Bank Negara’s direct action, the best it can do is to keep monitoring the interaction between supply and demand for capital.
“Furthermore, it will have to strike a balance between recession forces and inflation.
“The government needs to work on a conducive environment for business on one hand and on the other, to speed up reforms that will make Malaysia a better place for investments for both domestic and foreign investors.
“We need to increase competitiveness with pro-market reforms,” he said.
