Ringgit likely to stay weak in 2024 H1, but worst is over
The ringgit is likely to stay weak in the first six months of 2024 as Malaysia grapples with China’s economic slump, a strong US dollar and delayed economic reforms at home, but the currency’s plunge has bottomed out, say analysts.
The ringgit hit a 26-year low on Feb 20, falling to RM4.7965 against the US dollar, its weakest level since the 1998 Asian financial crisis when it hit RM4.8850.
The currency also hit an all-time low of RM3.56 against the Singapore dollar the same day.
But OCBC Bank currency strategist Christopher Wong said: “We may have passed the worst for the ringgit.”
He told The Straits Times: “The ringgit’s weakness will be temporary and will gradually start to fade off after certainty on when the US Federal Reserve will cut interest rates and a recovery in China’s economic growth in the second half of 2024. But this may require patience.”
Like other analysts, Mr Wong is banking on a gradual recovery in Malaysia’s exports to revive the ringgit, driven by an anticipated growing demand for semiconductors and economic rebound in China, the country’s largest trading partner.
The government has also indicated it could defend the ringgit as well as implement economic reforms, which should also help stabilise the currency.
Mr Wong expects the currency to gradually strengthen to RM4.60 by the end of the year. But it will likely trade in the range of RM4.72 to RM4.76 against the greenback for the first half of 2024, and average at RM4.71 for the whole year, he said. The 2023 average was RM4.56 to the US dollar.
Malaysia’s Second Finance Minister Amir Hamzah Azizan was slightly more optimistic, estimating on Feb 29 that the ringgit would rise to RM4.50 against the greenback by year-end on the back of higher economic growth of between 4 per cent and 5 per cent.
He said the central bank is prepared to sell US dollars from its reserves to restrict excessive weakness in the currency.
By March 4, the ringgit had slid close to 3 per cent since the year began to RM4.73 to the US dollar, and about 1.2 per cent against the Singapore dollar to RM3.52.
The ringgit’s weakness since Dec 30, 2023, was triggered by the contraction of Malaysia’s trade surplus as imports increased more than expected, while exports extended their weakening trend, said Malaysian Institute of Economic Research economist Shankaran Nambiar.
Malaysia’s trade surplus narrowed to RM10.12 billion (S$2.87 billion) in January compared with RM18.16 billion a year ago, with imports growing faster than exports. Imports grew 18.8 per cent in January from a year earlier, exceeding export growth of 8.7 per cent for the same period, data from the Ministry of International Trade and Industry (Miti) showed.
“When Malaysia earns less from exports and spends more on imports, it sparks concerns as to whether the demand for the ringgit can be sustained. This dents investor sentiments and weakens the ringgit,” Dr Nambiar said.
The January export growth numbers marked an upturn, after 10 consecutive months of slowing exports. But the ringgit remained weighed down by shrinking exports to China, which fell 7.6 per cent in January from a year ago on lower shipments of electrical and electronic goods.
However, analysts say the ringgit is expected to gradually strengthen by year-end, driven by potential interest rate cuts in the United States, as well as anticipated higher semiconductor sales. Malaysia is the world’s sixth-largest semiconductor exporter, with a global market share of about 7 per cent.
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