The ringgit has fallen to its lowest against the US dollar since August 2009 amid concerns over the impact of low oil prices on Malaysia’s economy and the timing of US interest rate hike.
At 5pm yesterday, the ringgit was quoted at 3.5425 against the US dollar, which has been gaining strength against all major currencies in the world. That represented a weakening of 10.81 per cent for the ringgit against the US dollar in the last six months.
According to independent economist Lee Heng Guie, the ringgit would likely remain under downward pressure as investors were concerned about the impact of falling crude oil prices on Malaysia’s economy.
Malaysia, which is a net exporter of crude oil and petroleum, is seen as the biggest loser in ASEAN of lower oil prices.
“Being a net oil and gas exporter, it will cause a sharp slowdown in oil and gas investments and affect the Government’s ability to spend as it struggles to manage its fiscal deficit on account of falling oil revenue,” RHB Research Institute said in a recent report.
Low oil prices would result in some loss of income for Malaysia through lower dividends from state oil producer Petroliam Nasional Bhd and lower tax and excise duties. Petroleum-related revenues account for around 30 per cent-40 per cent of total government revenue each year.
Savings from recent subsidy reforms might not be sufficient to offset the loss in income for the Government that was looking to cut its fiscal deficit to 3 per cent of gross domestic income (GDP) in 2015 from 3.5 per cent of GDP this year, economists said.
There were divided views as to whether Malaysia would momentarily slip into twin deficits, a situation where an economy is running both fiscal and current deficits, in the coming months.
Brent crude oil, an international benchmark, fell to a fresh five-year low at 5pm yesterday when it was quoted at US$54.23 (S$72) per barrel. That represented a decline of more than half from the peak of around US$115 per barrel in mid-June.
Investors are expecting the US Federal Reserve to raise interest rates in the coming months, following the end of its third round of quantitative easing (QE3) programme last October.
QE3, which was launched in September 2012, involved the buying of long-term US Treasury bonds to push long-term interest rates low to support the country’s economic recovery.
In the last six months, the ringgit had also weakened against other regional currencies, including the Singapore dollar, against which it fell 3.63 per cent to 2.6493. The ringgit fell 0.91 per cent against the South Korean won to 0.3184; and 2.9 per cent against the Indonesian rupiah to 0.02801.
Nevertheless, the ringgit had appreciated against the British pound, euro, Australian dollar and Japanese yen over the last six months.
Yesterday, the ringgit was quoted at 5.4080 against the pound, 4.2249 against the euro, 2.8541 against the Australian dollar and 2.9397 against 100 yen (S$1.11).