KUALA LUMPUR: Economists believe there may be additional pressure on the ringgit, and selling pressure in the bourse this week (April 15) with heightened tensions in the Middle East likely to drive up crude oil prices, and send investors flocking to safe haven assets.
Malaysia University of Science and Technology economist Dr Geoffrey Williams said the escalation of conflict in the Middle East will increase market risk and uncertainty and cause financial market investors to seek safe havens, mainly the US, with Singapore expected to be a beneficiary in Asia.
He said such a move would not be reflective of the Malaysia's economic fundamentals, but more a case of speculative outflows of capital to markets seen as safer in the short-term.
"For the moment it is a shock to markets and we will see a response tomorrow at the opening and during the rest of the day," he told Business Times.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the ringgit is likely to see weakness in the near term with heightened global inflation making the US keep its restrictive monetary policy.
He explained that the immediate impact of the increased tensions would be on crude oil prices, which in turn would exert pressure on global inflation.
He said should the US inflation rate take more time to reach the 2.0 per cent goal, it could result in the Fed keeping its restrictive monetary policy stance for a prolonged period.
"This would certainly bolster the value of the US dollar. On that score, the ringgit is likely to remain weak in the near future," said Afzanizam.
National Graduate Institute for Policy Studies Japan's assistant professor of Development Studies Guanie Lim said he expects limited impact on the ringgit and the local bourse with the recent development, as the conflict has been ongoing for some months.
"Typically, oil prices tend to hike somewhat following geopolitical tension in the Middle East, so this time around we can expect something similar. "In that case, oil and gas counters on our Bursa might receive some buying interest," he told Business Times.
On the ringgit, Lim said the recent moves by the Ministry of Finance and Bank Negara Malaysia have helped ease downward pressure on the ringgit somewhat, therefore the impact this time around might not be so severe.
Economy Rice podcast macroeconomic analyst Aaron Pek also expects limited impact on the ringgit, with domestic policy and economic developments having more influence on the ringgit than any recent geopolitical developments.
The direct impact of escalating Israel-Iran tensions on the ringgit will likely be relatively muted. "What we are concerned about are export flows to the countries involved, since they contribute to Malaysia's current account surplus," he told Business Times.
Aaron said any disruption in the flow of palm oil exports to Iran may have a larger direct impact on the ringgit, with Malaysian exports to Iran standing at RM3.68 billion in 2022.
"However, even the possible complete loss of this export market (e.g. due to US imposed sanctions) would have a relatively muted impact on the ringgit, given Malaysia's 2023 goods exports balance of RM132 billion.
The larger source of concern from the recent Iran-Israeli developments would come from potentially higher oil prices.Iran has used oil prices as a geopolitical bargaining chip in the past, and it will almost certainly do so given the existing geopolitical status quo if things develop further negatively," added Aaron.