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       KUALA LUMPUR: The ringgit is playing catch up to the US dollar as surging global interest in the greenback increases its demand and value tremendously.

       The sharp increase in the US dollar has resulted in the ringgit depreciating 5.3% year-to-date to RM4.3987 against the US dollar last Friday from RM4.1763 on Jan 1, 2022, and is expected to slide further following the decision by the US Federal Reserve (Fed) to increase interest rates.

       The declining value of the ringgit against the US dollar has triggered alarm bells among economists, forcing the government to find ways to stabilise the exchange rate for the local note.

       What the government faced today is similar to what it encountered during the 1998 Asian financial crisis (AFC) and 2008 global financial crisis (GFC), which saw the ringgit experienced a sharp slide against the greenback.

       The value of ringgit was at RM3.80 and RM3.46 against the US dollar, respectively, before measures were taken to stabilise the local note.

       The striking difference was oil price witnessed a slump at the end of 1998 and 2008, where its average price were at US$12.76 per barrel and US$96.94 per barrel, respectively, compared to around US$106.61 per barrel today.

       Hence, why is our local currency depreciated against the dollar when oil prices are trading higher than before?

       The answer is that not only the ringgit faces pressure but developed nation currencies are facing it as well.

       According to Bank Islam chief economist Mohd Afzanizam Abdul Rashid, there are various reasons that influenced the movement of a currency, especially in terms of demand.

       He said this could be either short term or structural in nature such as something that is more permanent.

       The economist said the short-term factors could come in the form of, among others, interest rate decisions by major central banks such as the Fed as well as other factors such as geopolitics like the war in Ukraine.

       “During these uncertain times, demand for safe-haven currency namely the US dollar would be higher because the currency is deemed to be stable and liquid. This will happen all the time,” he said.

       Besides the ringgit, he said the Singapore dollar also weakened 3.42% against the US dollar, Thai baht depreciated 4.52%, Indonesia rupiah eased 2.39%, Taiwan dollar declined 7.15% and the Japanese yen went down 10.7% against the greenback year-to-date.

       What could be done to minimise the impact?

       Among the measures taken to mitigate the 1998 AFC were the pegging of the ringgit against the US dollar as well as the closing down of the overseas trade of the ringgit and the trade of Malaysian shares in Singapore to put an end to speculative activities in the currency and in the local market.

       The measures were also to regulate capital flows, particularly short-term capital outflows by foreigners and local citizens.

       During the 2008 GFC, the government had implemented fiscal and monetary policy, stabilising the banking system and strengthening of economic outlook to stabilise the ringgit.

       As a result, the banking system had sufficient capital to resolve the crisis and it was relatively difficult for the Malaysian authorities to borrow from foreign banks.

       Malaysia also adopted measures to deal with the crisis in the form of a fiscal stimulus package and an easing of monetary policy.

       However, Mohd Afzanizam said the measures taken in 1999 and 2008 were not the best measures that could be replicated to solve today’s rising concern.

       “We have to understand that the effect of currency movement is always two-way. It can be a costly affair to importers as they have to pay more but exporters are benefitting from it since export prices becomes highly affordable from the foreign buyers’ point of view.

       “I suppose the government should focus on managing the economy by ensuring that growth will remain intact and can facilitate the business community to prosper and more quality and high-paying jobs will be created along the way,” he said.

       He said by doing so, the local currency would align itself with the state of the economy and its prospect.

       Besides that, Mohd Afzanizam said another crucial aspect is subsidy for the people to mitigate the rising inflation as well as prices of basic necessities.

       “We admit that there are cases of misused subsidies but the reform needs to be halted at this juncture to avoid the situation from getting worse.

       “What we need is a roadmap and direct communications with businesses to ensure that the people do not have to carry this burden on their shoulders,” he said.

       Light at the end of the day

       Regardless, rest assured that what the country faced today has been faced before and the administration will take necessary measures to mitigate the impact on the people.

       Among it would be the tightening of monetary policy by Bank Negara as announced last Thursday and an increase of minimum wage to RM1,500 from May 1, 2022 onwards.

       Looking at the announcement of the first-quarter 2020 gross domestic product (GDP) on Friday, which came in higher than expected – attributed to the growth in domestic demand, namely consumption and investment – there are signs that the local economy is improving post-pandemic.

       Further reopening of the economy has been instrumental in contributing to the domestic economy as households and businesses are wide to transact which could be GDP accretive.

       As the economy improves, more jobs are created, supply chain resumes to normalcy, investments return and monetary and fiscal measures were taken, and Malaysia will regain its footing and the ringgit will stabilise again. — Bernama