KUALA LUMPUR (Oct 8): The appreciation of the Malaysian ringgit against the US dollar was “a bit fast” during the three-month span between July and October this year, which may disrupt business planning and cause companies to struggle to adjust prices and operations smoothly, according to the World Bank.
World Bank lead economist for Malaysia Dr Apurva Sanghi said that one of the purposes of a flexible exchange rate is to act as a shock absorber to exogenous changes, but it is only effective when there are no large disruptive swings.
“In an ideal world, a gradual appreciation would allow the economy and businesses to adapt more smoothly, supporting long-term stability,” he told reporters during a press briefing on the World Bank’s Malaysia Economic Monitor October 2024 report on Tuesday.
The Malaysian ringgit has appreciated about 5.3% year-to-date against the US dollar, rebounding from its depreciation in 2023, making it one of the strongest-performing currencies in Asia.
“There is a feel good factor too (over ringgit appreciation) but I think these ‘good vibes’ won’t last very long. So you have to keep in mind some of these important longer term structural things as well,” he added.
While the strengthening of the ringgit against the US dollar is mostly welcomed by Malaysians, the economist reminded that currency movements, like any price changes, create both winners and losers.
“So, a stronger ringgit obviously benefits importers by lowering import costs but it makes exports more expensive and less competitive in global markets. As we know, Malaysia is a highly export-oriented economy, so, you look at E&E (electrical and electronics), you look at commodities, these are the sectors to be potentially affected,” he said.
Furthermore, Apurva added that export-oriented small and medium-sized enterprises (SMEs) will be more affected by a rapid appreciation of the ringgit, compared to large companies, as more sophisticated companies would have hedging strategies to combat currency fluctuations.
“So the real nature of the impact on how severely affected these export-oriented companies would be [by] the appreciation of the ringgit, would depend on the hedging strategies they have in place,” he said.