By Sharina Ahmad
MALAYSIAN exporters can expect to benefit from a weaker ringgit during the Covid-19 outbreak. Currently, the ringgit is at RM4.28 to the US dollar, having depreciated by 4.9% from RM4.08 in January. At one point on March 23, the local currency depreciated to its lowest at RM4.44.
MIDF Research senior analyst Imran Yassin Md Yusof said the weakening ringgit could have two beneficiaries – exporters and companies whose revenues are denominated in the US dollar.
“In terms of exporters, this would likely make our products more competitive. Also, should the company maintain its selling price, this could translate to higher translation gains. Some of the companies that could benefit are glove and semiconductor manufacturers,” he told FocusM.
Under normal circumstances, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said, the weak ringgit would be favourable because our exports will be competitive in international markets.
“While the weak ringgit would result in a costly import bill, the prevailing condition is very unusual. We have lockdowns, semi lockdowns as well as states of emergency across the globe.
“These measures have serious implications on the mobility of goods and services as well as workers. So it’s a major disruption to economic activities. Even some factories are not able to operate at normal capacity. In that sense, the weak ringgit at the moment does not really help improve the economy,” he opined.
However, Institute for Democracy and Economic Affairs (IDEAS) economics and business unit research manager Lau Zheng Zhou said the falling global demand and disruption to the supply chain may also mean Malaysian exporters were not able to be more competitive just because of the weak ringgit.
“First, let us start by recognising that the ringgit has been weak relative to the past even before Covid-19. Businesses, both exporters and importers, should already be accustomed to this new normal.
“Second, businesses make decisions based on future prospects or profitability, not just about the ringgit position which fluctuates on a daily basis. Yes, a sudden weakening will create liquidity issues to importers (sudden hike in costs) or exporters selling more abroad — but in this Covid situation, it is not clear if businesses can plan too far ahead or take the opportunity because of the weak ringgit,” he noted.
As China slowly relaxes its restrictions, especially in Wuhan and other cities in Hubei province — the centre of the outbreak — factories realise that their production capacity has been badly affected, and global uncertainty means they are not getting enough orders, said Lau.
He added the ringgit and other Asian currencies have actually seen some rebound because investors think these economies will likely recover faster than the West due to stricter lockdown measures. — March 27, 2020
