A serious matter if ringgit drops below RM4.48, says economist

20 May 2022 09:00am

Former Executive Director of the Malaysian Institute of Economic Research (MIER), Professor Emeritus, Datuk Dr Zakariah Abdul Rashid said fluctuations in currency is a common matter in other countries

The country's inflation is at 2.2 percent which is still considered low compared to the US with 7 to 8 percent inflation.

SHAH ALAM - The depreciation of ringgit to RM4.40 against the US dollar is a clear indicator that the ringgit has been severely affected against other regional currencies due to uncertainties in the global economy.

Ongoing conflicts and war, inflation, rising oil prices and food security would cause ringgit to fluctuate.

In reality, this scenario could spark concern among many, especially when the country is still in the process of recovery after two years of Covid-19.

Universiti Sains Islam Malaysia (USIM) Economic and Muamalat Analyst, Associate Professor Dr Nuradli Ridzwan Shah Mohd Dali said the ringgit needs to be below RM3.80 to remain strong.

"Based on the technical alignment, if the value of the ringgit violates or exceeds the level of RM4.48 then the value of the national currency will decrease and can be considered a serious matter. If it is below the level of RM3.8 then it has the potential to remain strong.

“If it exceeds RM4.48, one of the direct impacts is the increase in the country's import cost and this will definitely burden Malaysia which already imports a lot of food commodities such as meat, rice and wheat.

"The price of existing necessities are going up, imagine with the increase in import costs, it will definitely put more burden on the people," Nuradli Ridzwan Shah told Sinar Premium.

Meanwhile, former Executive Director of the Malaysian Institute of Economic Research (MIER), Professor Emeritus, Datuk Dr Zakariah Abdul Rashid said the currency fluctuations were common in other countries.

"The ringgit exchange rate is the price of the ringgit in terms of other currencies and the price is determined by the demand and supply of that currency which is traded as a commodity in foreign exchange or forex market," he said.

For the record, currently, the country's inflation is at 2.2 percent which is still considered low compared to the US which experiences up to 7 to 8 percent inflation.

"To overcome high inflation, the US raised interest rates, causing Malaysia to also have to raise the overnight policy rate (OPR) rate recently.

In the meantime, he said the foreign exchange rate (currency value) is also a reflection by the country's productivity level.

"For that reason, for example, the value of RM1 cannot be equated with SGD1 because it is unlikely that we can equate Malaysia's productivity level with Singapore in a short time, as well as similar observations between the ringgit-US dollar, ringgit-euro and other currencies," he said.

Zakariah said solutions over ringgit depreciation need to looked into.

“A fundamental example that can be improved is productivity. Advanced technology will result in high employee productivity which also is accompanied by a high level of labor skills.

"These fundamentals are related to the productivity and production techniques found in our production system," he said.