kheru2006 (kheru2006) wrote,
kheru2006
kheru2006

Monitoring the ringgit

FOUR ringgit to a dollar – that’s what currency traders are looking at as the value of our currency continues to slide.

The ringgit, which slid to a fresh 17-year low on Thursday – RM3.8288 against the US dollar before closing at RM3.8190 – has been under tremendous pressure as weak sentiments continue.

It has been almost eight months since the value of the ringgit began shrinking.

Consumers may cheer each time the price of petrol drops (like what happened yesterday), but they have to be mindful that the ringgit will continue to be hit each time there is a slump in crude oil prices as Malaysia is an oil-exporting nation.

And it certainly does not help that the prices of other commodities, including palm oil, have been on the decline in this same period.

Since January, the price of Brent Crude has sunk to levels not seen since 2009 primarily on speculation that US crude stockpiles will increase, resulting in a global supply glut.

Unless there is some form of stability in the crude oil prices, Malaysians can expect rocky times ahead for the ringgit.

Bank Negara has been defending the ringgit, but so far it has not been able to stem the decline. Even upgrades by rating agencies such as Fitch have not helped.

It is learnt that our central bank has been talking to dealers to persuade them not to accept orders to sell the ringgit but to take the buy orders instead. But this gentle persuasion method has not yielded results.

Year to year the ringgit has lost about 8.4% against the US dollar, making it the worst performing currency in Asia.

What does the continued depreciating ringgit mean for us? Well, we will have less money to spend when we are travelling after converting the ringgit to a foreign currency, particularly the US or Singapore dollar. In fact, it has become more expensive to buy the Thai baht now.

We will also have a bigger bill for our food items as we are a food-importing country. In January, the import of consumption goods – which accounted for eight percent of total imports – expanded by RM85.4mil (+2.0%) to RM4.4bil.

The main components contri­buting to the increase were food and beverages, processed, mainly for household consumption (+RM58.3mil, +5.1%), semi-durables (+RM50.1mil, +6.9%) and food and beverages, primary, mainly for household consumption (+RM43.6mil, +6.2%).

While our bill for food has shot up, our exports have taken a dip, especially palm oil and palm oil-based products. The government derives about 31% of its income from oil-related sources, according to reports.

Malaysians can expect to pay more for their food items, especially processed food, and it will not be easy as we are already grappling with the increasing cost of living in the post-GST era.

Employers, staring at declining revenue as we enter the third quarter, are already combing through their books on how best to cut operating costs. Controlling recruitment and reducing wages are among the immediate actions being taken.

Last week, Royal Dutch Shell announced that it was preparing for a “prolonged downturn” by cutting thousands of jobs and slashing billions of dollars in investment over the next two years. It also said that “today’s oil price downturn could last for several years”.

A Malaysian business weekly reported last week that Petronas has abruptly ended or plans to end the contracts of 14 of its 18 oil rigs within a year to save the company millions of ringgit yearly as “it recuperates and plans its rebound”.

Malaysia relies heavily on Petronas for most of its oil and gas revenue as out of RM66bil in oil revenue last year, RM29bil came in the form of dividends paid by Petronas, according to a report. That dividend would be cut to RM26bil this year, Petronas said.

In simple language – we already know the government will have less money to spend on development now and it has already revised its growth forecast.

If the ringgit continues to slide, it will have a serious impact on our international reserves, which stand at a five-year low of US$100.5bil (RM384.3bil), down from US$105.5bil as at end June, according to a report in The Star.

A Singapore-based analyst at Bank of America Merril Lynch predicted the ringgit could weaken against the dollar to RM3.86 by the end of this year and RM4.05 by the end of 2016, while Malayan Banking Bhd in Singapore forecasted “the lowest the ringgit could go would be 3.85 against the US dollar but we still think the ringgit’s exchange rate could average at 3.82 against the greenback in the current quarter, before strengthening to 3.78 in the fourth quarter of the year”.

Well, for the sake of Malaysia and Malaysians, we hope the optimism of this analyst is right. While Malaysians are glued to the drama of the current political controversies, they should also follow closely how the ringgit is performing or not performing.

The government currently has its hands full on many fronts with many raging political battles but the sooner it gets back to refocusing its energy on the economy, the better it will be for us.

Clear minds are needed to make sure we can defend the ringgit as we look at other revenue streams to boost our economy and the livelihood of ordinary Malaysians.

Tags: ekonomi
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