Ringgit depreciation may get worse

ECONOMIC experts have raised concerns about the potential worsening of ringgit depreciation if the global economy remains sluggish, coupled with a lack of clear policies and strategies from the government to address the issue.

Centre for Market Education (CME) chief executive officer Carmelo Ferlito said that that the government does not seem to have a clear, comprehensive and long-term vision on ringgit depreciation.

"I see more reactions than actions besides different signals.

"It is still unclear whether the government believes in the importance of economic market or wants to insist on price control, price restriction and bureaucracy," he told Sinar Premium on Saturday.

Recent reports indicate that the ringgit has experienced a nearly six per cent decline in the first half of 2023, making it the worst performer among Asian currencies.

During the same period, the ringgit suffered the largest drop among developing Asian countries, falling by 5.8 per cent, primarily due to capital outflows.

According to Carmelo, several key factors contribute to the weakness of the ringgit.

"The devaluation of the ringgit is influenced by multiple factors, including global economic uncertainties, which have led to the US dollar becoming the preferred safe reserve currency."

"Additionally, China's economic underperformance resulting from their self-imposed closures and restrictive policies can also impact Malaysia's economic growth since China is a significant trading partner," he added.

Carmelo further explained that while the weakness of the ringgit does not necessarily reflect a weak economy, as it can sometimes be a result of speculative attacks, investment is crucial for the country's development. Given the prevailing uncertainty, attracting investment becomes challenging.

"The government should adopt an aggressive pro-market strategy and foster an investment-friendly ecosystem, which could help boost the value of the ringgit," he suggested.

Meanwhile, Centre for Future Labour Market Studies (EU-ERA) economist Muhamad Zharif Luqman Hashim also admitted that the uncertain policy issued by the government will cause domestic and foreign investors to doubt investing in Malaysia.

He stressed the importance of a sustainable and comprehensive strategy and policy by the government, taking into account a combination of monetary, fiscal, and structural measures to address the issue.

"For instance, the government can swiftly implement monetary policy measures such as temporary capital controls. These controls can restrict the outflow of national funds by imposing limits on currency conversion or foreign investment," he proposed.

According to Zharif, the government could also explore the introduction of a transaction tax to discourage speculative activities, thereby stabilising the currency and averting a significant devaluation.

"Furthermore, the government needs to implement fiscal policies aimed at enhancing economic growth and inspiring confidence among domestic and foreign investors.

"Increasing government expenditure on infrastructure projects would stimulate the economy and attract investments," he added.

Maintaining political stability and good governance are equally important in sustaining investor confidence and supporting the stability of the ringgit in the future.

Zharif stressed the urgency of addressing the decline of the ringgit, as it could lead to higher food costs and subsequently impact business returns and inflationary pressures on goods and services for the general population.

"The rising cost of imports compels businesses to pass on these increases to consumers through higher prices of goods, ultimately resulting in higher inflation rates, decreased purchasing power, and potentially affecting living standards," he warned.