KUALA LUMPUR: The ringgit slipped to record lows against the US and Singapore dollars yesterday, bogged down largely by the surprise move by China's central bank to cut its lending rate.
The greenback hit a 26-year high against the ringgit, breaking through to 4.795.
The ringgit also fell to an unprecedented low of 3.5624 versus the Singapore dollar yesterday.
Economists said there might be some short-term pressures following Malaysia's less robust gross domestic product (GDP) growth in the fourth quarter of last year.
They, however, believe the ringgit will not weaken substantially from the current levels.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the ringgit's fall was largely due to the surprise decision by the People's Bank of China (PBoC) to cut its five-year loan prime rate by 25 basis points (bps) to 3.95 per cent from 4.2 per cent.
This suggested that PBoC's monetary stance would remain accommodative as the country grappled with the impact from the property slowdown.
"The size of the rate cut was more than in the past, suggesting that the PBoC is becoming more assertive in introducing monetary stimulus. Such monetary responses would negatively affect the yuan as the currency would stay weak against the US dollar."
Correspondingly, he said the ringgit would follow the same trajectory given that the ringgit and yuan were positively correlated at 75 per cent.
"This could really explain why the ringgit is weak at the moment."
Against the US dollar, the ringgit has fallen about 3.5 per cent this year. The Singapore dollar, on the other hand, has risen about 2.2 per cent since early this year after several successive rounds of policy tightening.
SPI Asset Management managing director Stephen Innes said the ringgit was softer, in line with the broader G10 currencies.
On the ringgit's recent weakness against the Singapore dollar, Innes believes the situation is being overly emphasised.
"This could actually attract more tourist dollars, benefiting Malaysia's tourism sector."
Innes said it was highly improbable that the ringgit-Singapore dollar pair would trade much beyond 3.60.
"The Singapore dollar typically weakens less than ringgit during periods of US dollar strength as the city state is still viewed as a safe haven."
Meanwhile, Afzanizam said Malaysia's current account would have remained in a surplus balance of 1.2 per cent of GDP last year, which was lower compared to 3.1 per cent of GDP in 2022.
He also said the banking system was highly capitalised with total capital ratio of 18.2 per cent, well above the minimum level of 8.0 per cent.
"Similarly, the liquidity coverage ratio stood at 161 per cent in December last year. Again, this was above the minimum level of 100 per cent. Meanwhile, the gross impaired ratio declined to 1.65 per cent as of December, lower than 1.73 per cent in January last year.
"This suggests that despite the weak ringgit, it is almost 'business as usual' for the intermediation of funds between borrowers and lenders. It's just that businesses would need to manage their cost effectively as the cost of doing business is likely to go up in view of weak ringgit."
Tradeview Capital Sdn Bhd vice-president Tan Cheng Wen believes over the longer term, the US economy would slow down and push the Fed to cut rates.
Tan said this would help narrow the interest rate differential between the US and Malaysia, which would be supportive to the ringgit.
"Hence, we believe it is unlikely for the ringgit to further weaken substantially from the current level. However, there may be some short-term pressures as our fourth quarter GDP numbers came in below market expectations due to weaker exports," he added.