Dr Shane Oliver, head of investment strategy and chief economist at AMP Capital, believes that the depreciation of the Ringgit is positive for the Malaysian economy as it will help make the local industry more competitive globally.
When the value of Ringgit declines, the price for our exports goes down too. This acts as a shock absorber, provided the decline does not turn into a destabilising rout and Malaysia does not have too much of US dollar-denominated debt.
In fact, Dr Oliver doesn’t see much impact on Malaysia’s sovereign rating, following the decline in Ringgit.
The Ringgit was reported to have declined to a nine-year low on June 8 against the US dollar and also reached a new low at 2.78 against the Singapore dollar on June 10.
Dr Oliver also mentioned that the value of Ringgit would continue to trend down based on two key drivers:
- The rising US dollar could go further over time as the US Federal Reserve to be the first major central bank to raise interest rates.
- The downtrend in commodity prices is bad for Malaysia’s export earnings, notably for energy and oil.
However, Dr Oliver said this was just a part of the commodity-currency cycle which had also affected other currencies in the region where commodities play a prominent role. He cited the Australian dollar as an example.
[The Malaysian Insider]