PETALING JAYA: Although the economy is doing well in the face of global challenges, the ringgit continues to weaken against the US dollar due to the high rate of inflation and aggressive rate hikes.
The ringgit was trading at RM4.503 against the dollar at the close of business yesterday.
The World Bank Group’s chief economist for Malaysia, Apurva Sanghi, said that from a macro, meso and micro perspective, Malaysia’s gross domestic product is expected to grow by 5.5 percent this year.
He said this was higher than global growth of 2.9% and regional growth of 4.4%.
Rising commodity prices have also benefited Malaysia, as the country exports commodities such as palm oil, liquefied natural gas and petroleum, which make up 80% of all commodities.
Sunway University economist Dr. Yeah Kim Leng, explaining the weakness of the ringgit, said the main factor behind the strength of the US dollar is the action taken by the US Federal Reserve to continually raise interest rates. interest in order to fight against high inflation.
He added that other factors at play include falling prices for commodities such as palm oil, crude oil and natural gas.
“The global slowdown in demand for these items is having a dampening effect on the ringgit, which has been undervalued against the US dollar. But now it’s even more undervalued.
He said if we looked at the basket of currencies of Malaysia’s major trading partners, the ringgit was relatively stable.
However, he added that the ringgit will continue to depreciate against the US dollar as the high interest rate in the US is a major contributing factor.
“Exchange rate depreciation will continue due to short-term outflows from the ringgit into the US dollar as investors want to make as much profit as possible,” Yeah said.
He pointed out that the US dollar surged against all currencies, not just the ringgit.
“Once the US economy slows down and the inflation rate starts to come down, only then will the US dollar start to weaken. For the inflation rate to come down, the US economy has to contract and there are already signs that this is starting to happen.
Yeah said the weaker dollar will most likely become apparent next year as demand for goods in the United States begins to slow.
Tun Abdul Razak University economist Dr. Barjoyai Bardai said the weakening ringgit is the natural course of demand and supply.
He said the demand for the US dollar is currently strong and there is a lack of supply while the demand for the ringgit is weak but the supply is high.
“Investors continue to take the ringgit out of the country and invest in the United States due to higher yields.
“That will continue as long as US interest rates remain high because there are better returns to investing in the US,” he said, adding that the Fed raised the interest rate by 50 points, which attracted short-term investors.
Barjoyai also said that around 80% of Malaysia’s requirements are imported in US dollars as payment.
He said foreign workers also contribute as they send back about RM60 billion a year, which has an impact on the ringgit.