LAST Monday, money changers in Singapore ran out of ringgit notes as buyers flocked to their counters.

       Demand for the local currency surged across the causeway as people queued up at money changers as the ringgit hit a historical low against the Singapore dollar.

       The exhange rate stood at RM3.17 to the Singapore dollar on Monday, a record low.

       It was also no coincidence that the ringgit, a day later, traded at RM4.35 against the greenback, its lowest since May 2020, when the local unit traded at RM4.36 against the US dollar.

       Yesterday, the ringgit eased to RM4.36 against the US dollar but gained slightly to RM3.16 against the Singapore dollar.

       The narrative that has been bandied around over the ringgit’s weakness is that it points to poor governance and corruption. However, one may ask: what are the factors influencing the currency’s strength?

       A lot of it has to do with external factors, which have big influence on the movement of the ringgit.

       It must be noted that the US dollar has strengthened to a two-year high.

       All eyes are now on the US Federal Reserve as markets anticipate it to make aggressive interest rate hikes to curb inflation which is soaring at a four-decade high.

       Some commentators are expecting a hike of as much as 50 basis points when the US Fed meets next week.

       The slower growth expectations by China is also one of the factors which has pulled down the value of the ringgit against the greenback, given the strong links between China and Malaysia.

       Sunway University Economics Prof Dr Yeah Kim Leng said the ringgit’s weakness was likely to be temporary.

       “The ringgit is experiencing weakness due to monetary tightening and interest rate hikes in the US and the expected slowdown in China due to Covid-19 lockdowns.

       “Malaysia’s improving gross domestic product (GDP) growth coupled with surging exports, continuing current account surpluses, rising reserves and low and manageable inflation should help the ringgit retrace its recent decline,” he said. Meanwhile, Socio-Economic Research Centre executive director Lee Heng Guie, said other currencies such as the Chinese yuan and Japanese yen had also weakened.

       He said that apart from the US interest rate hike, there were other factors such as inflation, which has become a source of global concern.

       The prolonged Russia-Ukraine war, which has affected supply chains, also slowed down the global economy, he said.

       The International Monetary Fund (IMF) released a sobering outlook on growth last week, revising its projection for global output from 4.4% to 3.6% on the back of the war which has gone on for more than two months now, while also warning of uncertainties and inflation.

       This comes as a damper for the global economy which is slowly recovering from the ill-effects of the Covid-19 pandemic.

       Head of research at the Malaysian Institute of Economic Research Dr Shankaran Nambiar, concurred that the US Fed’s move and the slowdown in the Chinese market were immediate concerns.

       “The ringgit is in a difficult position with the ongoing war in Ukraine, rising oil prices and global trends stacked against it,” he said.

       The re-emergence of Covid-19 in China, Malaysia’s largest trading partner, and the ensuing tough measures taken by the Chinese government would undoubtedly slow down its economy, he said.

       “If Malaysia’s trade with China takes a downturn, it will have obvious repercussions on the demand for the ringgit,” he said.

       “Bank Negara has taken a cautious approach and does not look like it is in a hurry to tighten the supply of money.

       “It has its reasons: it probably does not want to stunt the recovery path and it does not think that raising the interest rate will do any good to the existing inflationary pressures but that leaves out the US interest rate factor from the picture, a matter that it will have to attend to at some point.

       “However, all hope is not lost, as strong domestic recovery, increasing domestic demand and robust demand for Malaysia’s exports could turn the picture around or at least prevent a deterioration of the forces against the ringgit,” Nambiar said.

       He projects the ringgit to weaken to RM4.40 against the dollar by the end of the second quarter before rebounding to RM4.15 before year end.

       If anything, a weaker ringgit may impact Malaysians exchanging the ringgit for stronger currencies to fund their children’s studies and make imports more costly. On the flipside, Malaysian exports may become more attractive.