Ringgit value will continue to fall for now, says economist

The ringgit is expected to continue its fall in the near future due to the strengthening performance of the US dollar, an economist says.

Lee Heng Guie, executive director at the Socio-Economic Research Centre, however said that its drop in value would be temporary. 

Speaking to MalaysiaNow, he said the ringgit would bounce back once the performance of the US dollar begins to decline, when the Federal Reserve slows the rate of its interest rate hikes. 

Until then, he said, the ringgit would likely continue under pressure as buying interest in the greenback remains strong. 

On Sept 7, the ringgit opened at 4.5010/5035 against the US dollar from 4.4970/4500 at the close of the previous day. 

This was its lowest level versus the US dollar since the Asian financial crisis in 1998, as more investors shifted to safe havens due to the uncertain global economic outlook.

On Sept 9, meanwhile, it opened slightly higher at 4.4960/4995 against the US dollar compared to 4.5010/5040 at the close of the previous day, due to Bank Negara Malaysia's third increase in overnight policy rate (OPR) this year. 

The hike of a further 25 basis points took the OPR to 2.5%. 

Nevertheless, the ringgit opened lower again on Sept 12, at 4.4970/5010 from  4.4965/4990 at the close of Sept 11, due to strong sentiments for the US dollar. 

"In the near term, the ringgit will be under pressure," Lee said.

"It's not just about fundamentals, but also confidence, sentiment play and, most importantly, whether the dollar has peaked, which is the point where the Fed will start to go slow on the interest hikes."

As many expected the rate of the US dollar to rise even faster, he said, investors were putting their money into the country's currency assets. 

He added that the strengthening of the dollar had affected the performance of other currencies in addition to the ringgit. 

Lee said the ringgit gains on Sept 9 were no guarantee that it would maintain its upward momentum as there was always the possibility of profit-taking activities. 

"For me, it is still volatile," he said. "Unless the investors feel that the dollar has peaked – 'I think it cannot go higher than this'. 

"Then maybe there will be some profit-taking on the dollar, and other currencies will strengthen a bit." 

He said the situation also showed that the depreciation of the ringgit was due to external factors. 

On the increase in OPR last week, Lee said such hikes had been done in stages, and described the move as appropriate given that Malaysia's economy was on the path to recovery. 

He said the rise was also in line with market expectations, adding that the OPR would likely continue increasing to at least 3% or 3.25% by next year.  

"The OPR is still low, even though Bank Negara has raised it three times," he said. 

"It's still lower than it was pre-pandemic. The time has come for us to begin taking some risks. If the country is faced with a new crisis, the central bank can reduce the OPR again rather than allow it to remain at a low level." 

On whether the OPR hikes could help boost the ringgit's performance, Lee said it would depend on the Fed's moves to balance inflation. 

"They could go as high as 4%," he said. "If they go to 4% and assuming that we stay at 3%, there would be a difference of 100 basis points or 1%. And 1% matters a lot. 

"There will be a potential risk to the ringgit." 

He also said that any increase in OPR next year would depend on the country's economic performance and inflation projections, in addition to external factors.