'Weaker ringgit could benefit exports but hurt consumers'

SHAH ALAM - The fall of the ringgit to over RM4.70 against the US dollar is caused by global factors, including the strengthened value of the US dollar, says an economist.

Putra Business School (PBS) MBA programme director Associate Professor Dr Ahmed Razman Abdul Latiff said the movement of the ringgit was influenced by foreign investors' equity holdings.

"When foreign investors sell their investments in equity, bonds, or Malaysian Government Securities (MGS) yields, it will easily affect the value of the ringgit," he told Sinar yesterday.

He said the situation was serious and even more worrying as there were predictions that the ringgit would continue to drop against the US dollar next week.

Razman said the important matter now was for the government to intervene to ensure that the ringgit's movement was not easily influenced by external factors, especially the US.

"In the short term, not much can be done except to reduce the dependency on imported goods and strengthen domestic output to take advantage of the drop in the ringgit's value.

"When the ringgit weakens, our exports become cheaper, attracting foreign buyers to purchase Malaysian products, which increases exports," he added.

Razman said when local businesses export their products, they should receive US dollars for the sales. This money would be used to purchase components or imported goods for the next sale.

"However, due to the increasing value of the US dollar, businesses may feel that it is beneficial to save the currency.

"When businesses choose not to convert US dollars to ringgit, the value of the nation's currency will continue to weaken," he said.

Razman said other factors such as inefficient fund transfer services and dependence on foreign workers also affected the value of the ringgit.

"The more we depend on foreign workers, the more money will be sent out of the country each month.

"This is because the workers are taking their money back to their home countries, which further weakens the ringgit.

"When the value of the ringgit weakens, it causes imported goods, especially food, to become more expensive. This is the biggest concern," he said.

Factors that cause the ringgit to fall:

• Weak economic growth and a major trade deficit can make investors less interested in investing in Malaysia, reducing cash flow.
• Constant political instability can cause investors to lack confidence and withdraw investments.
• A weak or unstable global economy in the global financial market can affect the Malaysian currency.
• A reduction in interest rates can make Malaysia less attractive to investors, who are more likely to invest in high-interest currencies such as the US dollar.
• International trade conflicts between major nations can introduce instability in the global market and trade tariffs can be charged or threatened, which can affect the value of the ringgit.
• Widespread speculation about the fall of the ringgit or the weakness of the Malaysian economy can cause the currency to depreciate against the US dollar and have a major impact on the stability of the currency, creating higher selling pressure.