KUALA LUMPUR (Bernama) – The Malaysian government is conducting a comprehensive study on the ringgit’s depreciation, said Minister for International Trade and Industry Datuk Seri Mustapa Mohamed.
He said the study was jointly undertaken by his ministry, Bank Negara Malaysia, Ministry of Finance (MOF) and the Economic Planning Unit (EPU) of the Prime Minister’s Department to ascertain the impact of the falling ringgit on the economy.
“We have experts in the government, Bank Negara Malaysia, MOF and EPU who are carrying out studies to determine if the depreciating ringgit is good or bad and if it has a positive effect on the economy,” he added.
Mustapa said as a trading nation, the depreciation of the ringgit would definitely have an effect and it was necessary for the study to determine its impact on imports, exports, inflation, manpower and others.
The ringgit extended losses to a ninth week and bonds fell on concern a slump in oil prices will hurt government efforts to reduce the fiscal deficit, Bloomberg reported.
The currency has declined 6.8 per cent since Oct 10, the worst-performance in Asia, as the drop in crude threatens to crimp revenue in the petroleum-exporting nation. The price of the commodity fell below $60 a barrel for the first time since 2009, helping to push the ringgit to a five-year low of 3.5073 per dollar last week.
“With crude oil below $60, the ringgit is facing additional pressure,” said Nizam Idris, Singapore-based head of foreign exchange and fixed-income strategy at Macquarie Group Ltd. “The psychological level for the Malaysian unit is 3.50.”
Datuk Mustapa said, “Ups and downs in trading is normal, nothing is constant in this world. Sometimes we make profits, sometimes we lose. Sometimes the ringgit is up and sometimes it is down as this is determined by market forces.
“In the past two days, it has depreciated and it will recover soon. This is normal but what we don’t want is a steep and sudden fall as it can have a negative effect,” he said, adding that the economy was still resilient.
Mustapa also said the question of pegging the ringgit against the US dollar did not arise as the move also has its positive and negative impact.
The drop in oil may also pull down the current-account surplus, which was at 7.6 billion ringgit last quarter, the least since June 2013. The government is aiming to cut the fiscal deficit to three per cent of gross domestic product next year from 3.5 per cent, having run a shortfall since 1998.
A weaker exchange rate will also push up import prices just as Malaysia prepares to introduce a six per cent goods and services tax in April. Consumer-price increases will average four per cent in 2015, the highest in seven years, according to a Bloomberg survey of 21 economists. Inflation averaged 3.2 per cent in the first 10 months of this year.
“Government bonds are under selling pressure because of the low oil price and lower current-account surplus,” said Fakrizzaki Ghazali, Kuala Lumpur-based credit strategist at RHB Research Institute, a unit of RHB Capital Bhd. “Based on our discussions with traders, the selling appears to be from foreign investors who are concerned about the impact of low oil prices on the government’s revenue.”