The devaluation of the Malaysian Ringgit (RM) currency over the past few years is increasingly worrying the local economic situation. It will also affect the socioeconomics and increase the price of imported goods.
Many have become tired of the devaluation of the ringgit over the past few years. The question often arises, when will it rise?
Before thinking any further, this article will share the 6 main factors why the ringgit currency has been so difficult to strengthen since the last two months.
1. Global Market Changes
Changes in the ups and downs of the ringgit currency in the short term are now more dependent on the global market situation in the United States and China.
Economic growth and interest rate levels in the United States favor the strength of the US dollar. Indirectly, this will highlight the significant difference in currency value compared to the small economy of Malaysia.
In addition, the situation of China's economic market which has experienced a slowdown has also attracted the view of global foreign currency exchange investors who think that the Asian economy has less impact in reaping profits.
2. Interest Rate
The fixed interest rate of 3.0 percent at the end of 2023 has caused the movement of the local economy to remain stable. The decision is a response by Bank Negara Malaysia (BNM) that the country's economic situation is still under control and good.
That is an unchanged result for four consecutive times from May 2023 until now.
3. Inflation Data
Currently, Malaysia's overall inflation rate measured through the Consumer Price Index (CPI) remains at 1.5% in December 2023.
This makes overall annual inflation in 2023 increase to 2.5 percent compared to 3.3 percent in 2022. This positive impetus will continue to help the value of the ringgit currency to continue to survive.
If there are concerns about an uncontrolled rise in inflation, it could lead to a decline in the ringgit's purchasing power and cause the currency to weaken.
4. Local Market Confidence
The increase in the number of domestic investors, especially involving local companies in Malaysia, shows that confidence among investors is higher than in previous years.
Over the past year, Malaysia has approved investment worth RM225 billion in the service, manufacturing and primary sectors in the period from January to September 2023. The report is up 6.6 percent from the RM211 billion investment approved in the same period last year.
However, market sentiment can change direction due to factors such as political instability, economic weakness or financial policy uncertainty which can cause investors to lose confidence.
5. Palm Oil Price Movement
Malaysia is a significant producer and exporter of palm oil globally. If the price of oil falls, it can affect the national income and put pressure on the currency.
The price of crude palm oil (CPO) is expected to trade higher past the RM4,000 per tonne level in 2024 following supply constraints following a moderate El Nino threat and lower fertilizing activities in 2021 and 2022.
6. Political Uncertainty & Economic Policy
Political instability in the country or uncertainty about economic policies can have a negative impact on investor confidence in the ringgit.
Since the 15th General Election, internal political turmoil has become a major topic in the local media after the Madani Government under the leadership of Dato Seri Anwar Ibrahim managed to form a unity government as a result of the combination of several parties to form a majority.
However, to what extent is this government's credibility capable of stabilizing the political atmosphere as well as a more sustainable local economic policy?
So, these are the 6 major factors that have been the main cause of the ups and downs of the ringgit currency over the past few years.
Hopefully this sharing will benefit all readers!
