Ringgit Falls to 25-Year Low, the Worst Performer in Asia After Yen This Year

(DEFENCE SECURITY  ASIA) — The Malaysian ringgit has reached its lowest point since the Asian Financial Crisis due to a combination of factors.

This decline is primarily attributed to the strengthening of the US dollar and a widening interest rate gap between Malaysia and the United States.

In the latest downturn, the ringgit depreciated by 0.3% against the dollar, reaching a level of 4.7635 per dollar, which is the weakest it has been since 1998.

It’s worth noting that the ringgit has been one of the worst-performing currencies in Asia this year, only surpassed by the Japanese yen.

This depreciation is occurring as the US dollar is experiencing increased demand as a safe-haven asset, partly due to concerns surrounding the Israel-Hamas conflict.

Additionally, Malaysia’s export performance has been on a downward trend for six consecutive months through August, partly influenced by a slowdown in trade with China, its largest trading partner.

September export figures are expected to be released on Thursday.

The decision of the Bank Negara Malaysia to pause interest rate hikes since July has further complicated the situation, as other global central banks have adopted a more hawkish stance.

This discrepancy has left Malaysia’s overnight policy rate at a significant discount compared to the upper bound of the US Federal Funds Rate.

Vishnu Varathan, the head of economics and strategy at Mizuho Bank Ltd. in Singapore, points out that the ringgit’s underperformance is linked to “real rate spreads” that may become even less favorable, especially as the reduction in subsidies affects inflation and exposes weaker real policy rates.

Policymakers are faced with a challenging choice between addressing economic headwinds resulting from higher interest rates or risking the stability of the economy and the ringgit by not responding adequately. — DSA

DEFENCE  SECURITY ASIA APPS

 

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