Ringgit at risk of entering "uncharted territory," warns economist

Ringgit may enter new crisis zone if it breaks past 1998 peak

22 Feb 2024 10:19am
Analyst suggested for tackling ringgit weakness by reducing import dependence. - FILE PIX
Analyst suggested for tackling ringgit weakness by reducing import dependence. - FILE PIX

SHAH ALAM - The Ringgit Malaysia (RM) could potentially fall below its 1998 Asian financial crisis low of RM4.885 against the US dollar, entering uncharted territory, warns an economist.

Universiti Sains Islam Malaysia (USIM) Lecturer at the Faculty of Economics and Finance, Associate Professor Dr Nuradli Ridzwan Shah Mohd Dali said that if the ringgit surpasses the peak level of RM4.885 from 1998, it would enter uncharted territory.

"There are two possibilities for the ringgit: it could either continue to appreciate or depreciate after reaching its peak value.

"If the ringgit surpasses RM4.885 (the value during the 1998 Asian financial crisis), it will enter uncharted territory, which signifies a completely unprecedented area.

"This situation is concerning and risky because there is no historical precedent.

"When this occurs, it's plausible that the ringgit's value will remain low compared to the US dollar," he told Sinar when contacted.

Nuradli pointed out that although the ringgit's current value hasn't yet reached RM4.885, it has approached levels similar to those during the 1998 Asian financial crisis.

"The ringgit's strength or weakness is influenced by market dynamics such as supply and demand, interest rates, and inflation.

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"Based on data, the ringgit has almost entered the territory of the Asian financial crisis three times: around 1998, around 2014-2016, and now we are indeed approaching that stage with a value of RM4.787 per US dollar.

"From a technical analysis perspective, the ringgit's situation could form a double top pattern.

"When the ringgit reaches its peak level, such as the RM4.885 seen in 1998, its value might decline, followed by a subsequent strengthening of the national currency," he added.

On Tuesday, the local currency displayed a weak performance, with the ringgit slipping to 4.787/7930 against the US dollar as of 9am, compared to 4.785/7890 at Monday's close.

The ringgit's lowest level was last recorded in 1998 during the Asian financial crisis when it hit RM4.885 per US dollar.

Bank Negara Governor Datuk Abdul Rasheed Ghaffour stressed that various external factors, including market adjustments to anticipated changes in US interest rates, geopolitical tensions, and uncertainty surrounding China's economic outlook, impact the ringgit's current performance.

On strategies to boost the ringgit's value without relying solely on external factors, Nuradli suggested that Malaysia should focus on increasing domestic income.

"When the ringgit appreciates, import costs rise. To address this issue, we must explore ways to boost domestic income.

"For instance, Malaysia can reduce foreign imports by producing essential goods such as meat domestically.

"Smart strategies need to be devised to enhance the country's productivity and reduce reliance on imported food items," he said.