Weaker Ringgit – good or bad?

1 Month MYR-USD rate 3-Nov to 3-Dec'15

1 Month MYR-USD rate 3-Nov to 3-Dec’15

 

Malaysia’s ringgit fell to the weakest level in almost five years on concern a slide in oil will make it harder for the government to achieve its fiscal deficit target. Month on month, Ringgit’s exchange rate against USD has fallen 4% from 3.3120 on 3-Nov-14 to 3.4420 on 3-Dec-14 according to the mid-day rate published by Bank Negara. RM 3.4420 for USD 1 recorded on 3-Nov-14 was the lowest since February 2010.

As reported in Bloomberg, Malaysia will be the sole loser among Asia’s emerging markets from the decline in crude. As Malaysia is the oil exporter, income from Petronas will be hurt by the decline in oil price. Since prices have fallen about 40 percent in the past six months, with international benchmark Brent dropping below $68, Petronas said it will cut next year’s capital spending by 15-20 percent. Similarly, revenue contribution in the form of dividend from Petronas will likely to fall with the decline in oil revenue.

While the government ended its fuel subsidy beginning Dec 2014 which translated to a saving of RM12 billion a year, the saving might well be offset by a reduced in oil dividend paid by Petronas. Also, with the pressure in cost of living from the introduction of GST in April 2015, and the hike in housing cost, the government is likely to cough up more money from its coffer in the form of handout which again hurt Najib’s 2015 fiscal deficit target of 3.0%.

Weaker Ringgit is helping the export market and will impact negatively for the imports. As the world largest palm oil producer after Indonesia, Malaysia did not benefit from weaker ringgit in its palm oil export. According to report from thestar, export actually declined due to lower demand amid competition from bean oil which is cheaper in price.

Outlook is still gloomy for Malaysia’s economy in year 2015 as there are many challenges ahead with the uncertainly in oil prices, the GST factor, and also the worrying level of house hold debts.

 

 

1 Comment

  1. Business First Family

    In the beginning, I believed your headline was misleading, but you really delivered. Nice job.

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