Malaysian Ringgit dropped to 3-year low against USD. Currently it takes RM3.26 to exchange for USD1.00. The value of Ringgit has been drastically falling since General Election took place in 5th May 2013. It this chart, it shows the value of Dollar is strengthen against Ringgit – therefore a weaker Ringgit.
The 1st reason is global investors are selling Ringgit as they expect U.S. would soon end the aggressive monetary stimulus (Quantitative Easing). They would then use their money invest into U.S. instead of Malaysia.
The 2nd reason is, Bank Negara Malaysia made an obvious absence from currency market. Our government might be allowing the currency to weaken to boost exports and improve trade balance.
This will be beneficial to exporting businesses and tourism industry because it now takes lesser Dollar to buy products made in Malaysia. Malaysia has also becomes a more attractive destination for tourists because it is now cheaper to spend money here. Imagine for every $100, a tourist can exchange for RM296 in May 2013. Now for every $100, the same tourist can exchange for RM325. Our Ringgit has fallen almost 9% against Dollar since early May. Malaysia is now a “cheap” country which is good for exporting business and tourism industry.
However for most working class, this is a bad news. Whatever amount of Ringgit we have in bank has just lost 9% of its value. In fact, even our salary has shrunk 9% due to a weaker currency. If we buy a product from U.S. that costs $100, it now takes us RM325 instead of RM296 just two months ago. For business owner, it simply means it takes more amount of Ringgit to purchase the same product (or service) in the global market.
The pressure on the Ringgit will remain until economic outlook improves and Bank Negara Malaysia will probably be forced defend the 3.25 per dollar support level by tapping into the country’s foreign reserves, according to a research note from DBS Bank.
On 30 Jul 2013, FitchResearch has revised Malaysia Outlook from Stable to Negative:
Malaysia’s public finances are its key rating weakness. It is approaching the government’s 55 percent limit. (Government debt rose to 53.3% of GDP at end-2012, up from 51.6% at end-2011 and 39.8% at end-2008.)
The revision of the Outlook to Negative reflects Fitch’s assessment that prospects for budgetary reform and fiscal consolidation to address weaknesses in the public finances have worsened since the government’s weak showing in the May 2013 general elections.
As of July 2013, foreign ownership of Malaysian national debt was 49.5 percent. While foreigners only hold 30 percent of American debt. “There is indication that Malaysia is now at a point of vulnerability,” said Hak Bin Chua, Bank of America’s Asean economist.
The outlook for Ringgit and economy might not be extremely positive. Individual like you and me could do little to improve the situation. However, instead of blaming the government, we should learn to make the most out of available resource we as individual has.
To find out more about my work, please take a look at the eBook: Practical Guide For Investing Silver In Malaysia. You will learn how to invest silver in Malaysia.