KUALA LUMPUR: Economists dismiss the notion that the government and Bank Negara Malaysia have failed to take proactive measures to address the sliding ringgit and raise the people's living standards.
They said the ringgit weakness was largely due to external factors, although they agreed that the currency volatility could affect investors' sentiment on Malaysia's prospects.
Malaysia University of Science and Technology economist Dr Geoffrey Williams said confidence in the Malaysian market had not dwindled.
He added that it was not the role of Bank Negara to control the performance of the ringgit.
"Even raising the overnight policy rate (OPR) has not improved the ringgit," he told the New Straits Times.
Williams pointed out that the ringgit was affected by external factors, which were also troubling many countries. These included the US debt ceiling and general geopolitical problems.
"The government is focusing on raising the living standards of Malaysians against the backdrop of falling inflation. Nevertheless, the economy is growing and more people are having jobs.
"Looking ahead, we expect the ringgit will remain volatile due to external factors in the near and medium term," he said.
Redvest Wealth and Asset Management chief investment officer Julian Suresh Sundaram said the ringgit's performance would depend largely on improving domestic economic dynamics and the US dollar movements.
He said while the dollar strength was largely out of our hands, domestic economic dynamics remained firmly in Malaysia.
"The ringgits' near-term performance will depend on US dollar movements while its longer-term prospects will depend on local economic dynamics and efforts by the government and official institutions," he noted.
Sundaram said Bank Negara can continue cautiously hiking rates while the government can lay out steps to improve its finances by cutting back on waste and improving revenue.
"The government can also showcase more of Malaysia's economic vibrancy with shrewd public relations. Other agencies can also get into the act by promoting Malaysia as a good candidate for both long and short-term investment.
"Efforts will have to be multi-prong as the ringgit weakness seems widespread and is a negative vote by markets about Malaysia's prospects," he said.
Bank Muamalat Malaysia Bhd chief economist and head of social finance Mohd Afzanizam Abdul Rashid said the external factor had always been the main driver for the ringgit volatility.
At the moment, he said, the main concern was on the US government debt ceiling, with its Congressmen must agree on increasing the debt limit by June 1. Otherwise, the US government might not be able to pay its commitment including the debt obligation.
"The US government has been recording persistent fiscal deficits. So they need to raise the debt limit so that they can refinance the existing debts and issue a new one so that they spend as per their budget.
"So the financial markets are worried that the politicians might use this issue to gain their political mileage at the expense of the government's ability to finance their expenditure and servicing their debt obligation," he added.
Afzanizam said the country had seen such drama in 2011 which led to the downgrade in the US government sovereign rating from AAA to AA+ on August 5, 2011 by S&P.
Hence, he said the main concern now was whether history would repeat itself. If it did, it would wreak havoc on market confidence.
According to him, the near-term outlook for the ringgit was weak due to the US debt ceiling.
"At the US Fed, the latest Federal Open Market Committee (FOMC) meeting minutes showed the members were divided over raising the interest rate. So the thesis that the Fed Fund Rate may have reached its peak is still valid," he noted.
Meanwhile, Deputy Finance Minister Ahmad Maslan said the government and Bank Negara would discuss strategies to deal with the continuous decline in the ringgit's value.
He said the issue was raised in the Cabinet meeting yesterday.
"As it (the new debt ceiling) has not been approved, investors are still holding onto their money, so demand for the US dollar is strong," Ahmad Maslan said.
"We hope this phenomenon is only temporary and the ringgit returns to the stable levels that we've seen over the past six months," he said.
SPI Asset Management managing director Stephen Innes opined that the structural allocators of foreign capital were reluctant to commit capital to Asia due to China economic woes, which were getting compounded by an uptick in geopolitical risk.
He said unfortunately, the ringgit was caught up in this due to Malaysia's close economic ties to China.
Innes said the weaker ringgit was not Bank Negara's fault as the only tool the central bank had in its arsenal was higher interest rates, which would choke off the economy.
"In fact, the weaker ringgit should promote stronger exports. The weaker ringgit is a result of external factors, including a surprising, stronger US dollar and an equally surprising yuan.
"Last night, the FOMC minutes indicated the Fed would likely pause in June, but it hinted at a hawkish pause, which implies they will raise rates this year if inflation remains strong. So, the US dollar is really in the driver seat," he said.
Innes believes that all cyclical and commodity currency could struggle until the Fed cut rates and/or Chinese industrial activity picks up in the absence of People's Bank of China support to stimulate the Chinese economy.
He expects the ringgit-US dollar pair to hit 4.75, especially if the dollar-yuan moves closer to 7.25.
Meanwhile, deputy finance minister Ahmad Maslan yesterday said the government and Bank Negara Malaysia (BNM) would discuss strategies to deal with the continuous decline in the ringgit's value.
He said the issue was raised in the cabinet meeting yesterday.
"As it(the new debt ceiling) has not been approved, investors are still holding onto their money, so demand for the US dollar is strong," Ahmad said.
"We hope this phenomenon is only temporary and the ringgit returns to the stable levels that we've seen over the past six months," he said.
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