By Datuk Zainul Arifin
“Over the last three months it has appreciated by more than 10 percent, from the lows of RM4.80 to the US dollar.”
THE ringgit, which was a source of great national angst and dread earlier in the year, is now one of the best-performing currencies in the world. In fact, it is appreciating so much and so fast, it could be scary.
Over the last three months it has appreciated by more than 10 percent, from the lows of RM4.80 to the US dollar. It seems to be testing higher limits these days although the prospect of war in the Middle East could see people seeking refuge in the greenback and thus strengthening the US unit.
Nevertheless, recent phenomena of the ringgit’s rapid rise, or what bankers and people in the know suggest it finding its true level, is a clear reflection of the country’s sound economic fundamentals – investments were coming in strong, export was great, domestic consumption was healthy, inflation was under control, etc. But no one was listening then.
Instead we were pulling our hairs, instigated of course by those dining on scraps offered by headlines for their talking points that the declining ringgit was an indication that the economy was tanking – “For goodness sale, it is RM3.50 to the Singapore dollar!”
There were suddenly millions of forex experts, as there were as many virologists during the Covid times, drawing conclusions from 40-second TikTok videos that the ringgit decline was a reflection of the government’s economic ineptitude.
Criticisms were laced with scepticism, cynicism and suppositions calculated to inflict political damage and muddy the perception of the economy. They worked to a certain extent that the value of the ringgit became an existential problem for us.
The ringgit decline over the past couple of years was significantly due to the life-sucking higher interest rates regimes the world over to fight inflation that was fuelled by money doled out to boost economic recovery post-Covid. The US, for instance, raised interest rates 11 times over two years, and they were especially damaging as people were selling currencies, including the ringgit, for the dollar to benefit from better rate differentials offered by US financial institutions.
Now with the US moving towards a lower interest rates regime, demand of the greenback has lessened and that seemingly led to a global uplift of other currencies worldwide.
Another factor that led to the ringgit recovery is the much less discussed effort by the government and authorities, like Bank Negara, to get companies to bring back their profits home. This will require them to buy the ringgit and perhaps encourage them to invest their profits back home, rather than let them sit idle in bank accounts in foreign lands earning interests.
This exercise in moral suasion to get them to see the national agenda and not just their bottom lines was crucial in not only boosting the local unit, but also was sending signals to the market that Malaysians were united and in-sync to support the economy.
I am not sure how much arm twisting was done, if there was any at all, but for govenment-linked companies, for instance, needing “encouragment” to do so suggested that some of them were more bothered with the opinions of fund managers and analysts abroad than the fate of the country’s economy.
I believe GLCs and their management, for instance, should not just be evaluated by how much profit they register, but also on their overall contributions to the general well-being of the country and its social and economic agenda.
One of the interesting facts of the last year or so was the resistance by Bank Negara to use its reserves to go into the market and prop the ringgit. In hindsight, it was a wise decision despite perhaps the clamour demanding that it influence the direction of the unit. It would almost be an impossible task, like throwing good money to speculators who would soon drive the local unit down further for their own profits.
Clearly, the ringgit appreciation this past month is not just due to the narrowing of interest rate differentials but more on the recognition that our economic fundamentals are sound.
However, with the shroud of higher interest regime lifted, perhaps people are starting to believe our economic stories as well, and this should be reflected in the value of the local unit going forward. – scoop.com.my
Editor: Datuk Zainul Arifin is chief executive officer of Big Boom Media which publishes Scoop
