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Ringgit facing prospect of hitting RM5 to US dollar?

Mohd Afzanizam Abdul Rashid says the ringgit performance is determined by market forces although the current slump is expected to be short-term in nature.

Azzman Abdul Jamal
2 minute read
A man buys currency at a foreign exchange store in Kuala Lumpur on June 24, 2016. Photo: AFP
A man buys currency at a foreign exchange store in Kuala Lumpur on June 24, 2016. Photo: AFP

An economist says it is possible for the ringgit to depreciate to even RM5 against the US dollar, adding however that the recent slump in exchange rate will likely be short-term in nature as concern continues to swirl around the national currency which dipped close to its lowest level ever earlier this week. 

The ringgit stood at 4.6110/6165 on June 1 after four consecutive days of decline before bouncing back to close slightly firmer at 4.5745/5785 against the US dollar the next day. 

Its all-time low was recorded on Nov 4 last year when it stood at RM4.7465, below the RM4.7250 level seen on Jan 7, 1998, when the country was embroiled in the Asian financial crisis.  

Speaking to MalaysiaNow, Mohd Afzanizam Abdul Rashid said that the strengthening and weakening of the local currency was determined by market forces driven by demand. 

Afzanizam, who is head of economics and social finance at Bank Muamalat, said it was thus possible for the ringgit to exceed RM5 against the US dollar if spurred by market forces. 

"If the market forces decide this, it is definitely something that could happen," he said. 

"We are only worried about the impact. If the ringgit weakens, then imported inflation will be even higher." 

Economy Minister Rafizi Ramli recently said that the drop in ringgit value was due to economic and financial uncertainties in the US. 

Bank Negara Malaysia meanwhile said that the depreciation of the ringgit against the US dollar was not unique to Malaysia, and that the currency should improve as global uncertainties subside. 

Afzanizam said the ringgit decline would likely be short-term in nature, attributing the situation to external factors. 

He said the main factor in its drop in value was the recent discussions on the US' debt ceiling limit, where a decision is due on June 5. 

"This has invited anxiety in the market," he added. 

"When there are issues of uncertainty, market participants will tend to hold the US dollar, thus driving high demand for the currency."

Afzanizam said the ringgit had bounced back on June 2, when the US House of Representatives voted to pass the debt ceiling bill, indicating positive developments in the matter. 

He said this would boost confidence and increase the risk appetite of investors for other currencies, including the ringgit. 

He also said that these developments would only affect the ringgit performance in the short term, while its long-term performance would depend on the government's policies and commitment towards the country's financial position. 

"To ensure that the value of the ringgit continues to strengthen, the government needs to show its commitment to economic reforms that will yield more dynamic results and push the profits of public companies to a higher level," he said.

He added that the government would need to ensure that the positive narrative is continued and translated into the implementation of policies that help increase investors' confidence in holding assets in Malaysia.