How low has the ringgit fallen?
Before closing on 3 December 2014, the ringgit dropped to as far as 3.4455 to the US dollar – the weakest it had been since February 2010.
In the first quarter of 2015, the ringgit’s value continued to weaken. On 11 March 2015, the ringgit traded at 3.7105 to the dollar. The Malaysian Insider reported that there was the perception of a “looming crisis”, with the value of the ringgit being close to 1997 levels.
On 8 June 2015, the ringgit dropped to 3.7743, the lowest since January 2006. On 9 June 2015, it fell to its lowest value against the Singapore dollar in 30 years, trading at RM2.77 to the dollar.
How big was the drop and when did it start?
On 1 December 2014, the ringgit had its largest two-day depreciation since the 1997-98 Asian financial crisis, falling 2.4% to 3.4300 to the US dollar at closing, from 3.3465 per US dollar on Thursday 27 November at closing.
On 12 June 2015, it was reported that the ringgit had dropped for four consecutive weeks in the year’s longest losing stretch so far.
What caused the drop in the ringgit’s value?
Bloomberg reports that the depreciation is a ripple effect and “reflection of the absolute collapse in oil.” As oil is one of Malaysia’s main exports, the declining price of Brent crude oil of 38% from its June 2014 high is affecting the currency.
The falling value of the ringgit in June 2015 has been attributed to the prospect of the US increasing its interest rates. Some people (for example former Finance Minister Tun Daim Zainuddin) have also laid the blame at the 1MDB financial debacle. Deputy Finance Minister Datuk Ahmad Maslan in turn has blamed the former Prime Minister Tun Dr. Mahathir Mohamad’s criticism of the government for the weakening currency.
What caused the drop in oil prices?
Oil prices have fallen because supply has been exceeding demand, mostly due to high production of oil in the US. The price of Brent crude oil has now fallen to a four-year low. OPEC (The Organization of the Petroleum Exporting Countries), has so far declined to cut back on its production of oil too.
In June 2015, Bloomberg reported that the world is facing its longest oil glut in three decades as supply continues to outpace demand.
What is the fall out of the weakening currency?
The Bloomberg report states that the government is “already under fiscal pressure” and the central bank may be willing to accept the ringgit weakness to boost other exports and offset the drop in oil prices which will undoubtedly impact the economy.
Channel News Asia reported that “lower oil prices will impact Malaysia’s trade and fiscal balance negatively.”
As of June 2015, the credit ratings agency Moody’s continues to give Malaysia a positive outlook, but the Fitch credit ratings agency has given Malaysia a negative outlook. Fitch is threatening to downgrade Malaysia’s credit rating.
What are the predictions for the ringgit?
In December 2014, Credit Suisse Group AG lowered its three-month ringgit forecast from 3.38 per dollar to 3.49 per dollar. Reuters reported that the ringgit would continue to fall until oil prices stabilise.
In December 2014, Channel News Asia report reported that oil prices will only “stabilise by the middle of next year and may go up toward US$80-85 into late 2015”, so they foresaw a rebound for the ringgit late into 2015.
In 2015, the ringgit’s value has weakened month on month, apart from some slight relief in late April when the currency strengthened. However, since late May, the ringgit has again seen a sharp decline in value.
As of June 2015, central bank governor Dr Zeti Aktar Aziz believes the weakening currency to be a short term problem. On 19 June 2015, the ringgit pulled back against the US dollar with an uptrend, its value rising to 3.7050/7090 per dollar.
Mabel Ho and Ling Low
First published December 2014, updated March 2015 and June 2015.
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