Externally, economists told FMT Business, factors such as high US interest rates can also been instrumental in the local currency’s poor performance.
On the bright side, head of research at Bank Muamalat Afzanizam Rashid said, the ringgit could rise again if the government remains steadfast in pursuit of economic reforms.
The ringgit fell to RM4.75 to the US dollar in early trading on Monday and some analysts have warned that it could breach the RM5 level in the near future.
It breached the RM3.50 mark against the Singapore dollar and went past the RM6 level against the British pound in late January.
Prior to that, the weakest the ringgit has been against the sterling was on May 31, 2016 when it closed just a peek above the RM6 threshold.
Pacific Research Centre of Malaysia principal advisor Oh Ei Sun sees Anwar Ibrahim’s comments during his trip to the US for the UN General Assembly in September last year as especially poignant.
Anwar had said then that he had contemplated not attending the assembly because there were “various domestic issues” to be resolved.
Oh recalled that Anwar had also mentioned that American businesses he met in New York complained that the processes of doing business in Malaysia was rather “cumbersome”.
Thus, he said, investors were putting their money elsewhere for higher returns.
“Until such time that the country is able to make it easier to do business, the ringgit is likely to keep on falling,” he added.
Rise in US interest rates
Afzanizam said the US Federal Reserve’s insistence on keeping interest rates elevated in its battle against inflation has worked against the ringgit.
“Similarly in the UK, the Bank of England is keeping the rates high to help them achieve their goal of keeping inflation at 2%,” he said.
“So we have a situation where major central banks refuse to budge on interest rates and the markets fearing that a higher interest rate for a longer period can do more harm than good to the economy,” he added.
As a result, Oh said, there is now a shift in investors’ preference from Malaysia to the US.
“Investors are repatriating their funds to take advantage of the higher interest rates there,” he said.
Oh said domestic and foreign investors are constantly evaluating the balance between lower returns and lower business risks in developed nations against potentially higher returns but high risks in developing countries such as Malaysia.
Afzanizam said the ongoing struggle between markets and central banks has only intensified economic uncertainties.
“This has significantly influenced the foreign exchange markets and the local currency cannot escape the impact,” he added.
The remedy
Oh pointed out that the ringgit cannot help but feel the impact of the rise and fall of US interest rates because the greenback is the world’s currency for trade.
“What we can do to strengthen our currency is by improving the country’s economic fundamentals,” he said.
This, he said, would instil confidence among investors and, by extension, not only discourage outflow of US dollars but also lead to higher inflows.
Afzanizam said the government should be relentless in executing its economic reforms agenda.
“This includes fiscal consolidation, the transition towards renewable energy and ensuring robust governance,” he said. “It will improve investor confidence.”
That, he said, would ensure that foreign funds see value in Malaysian assets and serve as an incentive for them to invest in Malaysia.