Friday, March 6, 2015

Ringgit Depreciation In Perspective

This is from June 2014 to December 2014, and to February 2015 (% appreciation of USD; sorted based on the latter date; click on the image for a larger version):


The Ringgit is in the top half of the list, but just barely. Most of the bottom half are currencies pegged to the USD (i.e. from Honduras down to Saudi Arabia), while most of the top half are mostly European and pegged to the Euro. Not all currencies are on the list, but these exceptions are also mostly pegged currencies (most of the Caribbean and Africa for example).

Some people have been calling on the Governor to resign due to the deterioration in the USD value of the Ringgit. I don’t think Tan Sri Zeti is worse than the Governor of the Central Bank of Sudan. It’s clear from here that the sell down of the Ringgit is at worse only partially due to local factors, and much more to do with a strong global rotation towards the USD.

So much for “worse performing currency” and “foreign investors leaving due to lack of confidence in the economy”.

Technical Notes:

FX price data from the Pacific Exchange Rate Service


  1. The tea leaves aren't looking too encouraging of late.

    Malay Mail headline: Ringgit falls to 6-year low (against the US Dollar).

    In the Singapore Straits Times: China's February trade surplus hits record US60.6 billion, exports up 48.3 per cent and imports down 20.5 per cent.

    Larry Hu, head of China Economics at Macquarie Securities in Hong Kong: "The US is the single, most important propeller, and Chinese exports basically follow the US economy."

    As the Chinese economy goes, so too does Malaysia's?

    Frankly, I find it terribly "unfair" that a deficit-addicted economy like the US (with a lame duck President, a fractious Congress and with all manner of geopolitical hot potatoes and security challenges on its plate) gets to be "the single, most important propeller" with the US Dollar becoming the "safe haven" currency.

    It just makes life much harder for countries like Malaysia that are struggling to move up the value chain!

  2. Why compare to the worst case? e.g. Malaysia vs Sudan

    1. Are we? I thought we are comparing with the best case here

  3. stupidity of macai umno like their Kangkung PM...... (pemusnah malysia)

  4. Anon 6.07 and 6.22

    Msia vs Sudan.. to highlight the ridiculous situation. Even poor problematic Sudan looks ok because its currency is the pegged to US dollar..get it!.

  5. Malaysia's "external debt" is RM740 billion?

    I am inclined to regard the alarmist views on this with a degree of scepticism.

    How is "external debt" defined? How much of it is "short-term" and how much is "long-term"?

    There is no shortage of negative views on Malaysia. For instance, Google the Bloomberg report "Worse to come in Malaysia Dollar Debt".

    It's like a perfect storm. As the Bloomberg report pointed out

    - factors "ranging from a 13% fall in the Malaysian ringgit in the last six months, a 44% slump in oil (prices) over the same period and debt repayment concerns at 1MDB as weighing on the nation's debt".

    1. Bloomberg also listed Malaysia as the "Top 7 fastest growing economy in the world, in 2015"!

  6. ahhh it is the end. moving to sudan.....

    zuo de

    1. North or South? Sudan has been split :)

    2. This comment has been removed by the author.

  7. Singapore Dollar and Thai baht have appreciated against the Malaysian Ringgit at an unprecedented rate as well with Thai Baht, which has hover comfortably in the range of 10 baht = MYR 1 for many many years now comfortably ahead at more than 10pc of previous value. 10 baht = MYR 1.1x going on strong to MYR 1.2x and this is in spite of the supposed stability caused by the military coup. there are certainly larger factors at play than the mere "strong global rotation towards the USD."...

    1. @Tinker Tailor

      MAS has a policy of appreciating the SGD against the currencies of Singapore's trade partners. Far from being unprecedented, it's actually been very steadily appreciating since 2001. Details of Singapore's monetary policy approach can be found here.

      The Thai Baht only began appreciating against the Ringgit since August last year, or approximately in conjunction with the USD. Prior to that, it's been fairly steady since 2008. However, the BOT has paid a price for THB strength - they've been steadily losing reserves since 2011.

      That applies to the SGD as well - MAS has actually lost more than twice as much in FX reserves as BNM has, and the SGD has been at the bottom of the policy intervention band since January.

      Both Thailand and Singapore's exports are being totally killed by their stronger currencies.

      As for why the Ringgit depreciation appears excessive, look up the list above and check out all the energy exporters with freely floating currencies aka Russia, Australia, Canada and Mexico. Russia's suffered the worst, but the depreciation of the CAD, AUD and MXP has actually been steeper than the Ringgit, despite fairly similar energy export profiles. More details here.

    2. there are always upside and downside to every element of economic events, there are upside and downside to currency appreciation and currency depreciation.. the main issue is whether is there is more upside to MYR depreciation.. i like the fact you like to harp on the exports of both countries being totally killed by the stronger currencies as though it is something surprising but killed is a hyperbolic word that you chose to use but may be in reflected in actual economic term.. as long as there are other neutralising factors that counter-balance the effect... you seem to be very proud of the fact that MYR ringgit is depreciating while the cost of import has increased significantly..

    3. @Tinker Tailor

      SG and TH exports have both contracted sharply this year. Killed is a very apt description.

      I'm not proud of the fact the Ringgit has depreciated, I'm happy.

      I'm happy that our policy makers are being pragmatic and following the theoretically correct macro policies under this kind of situation.

      I'm happy that we don't have to go through another 1997 crisis because the authorities think the exchange rate is more important than employment and economic growth.

      I'm happy that we're not losing jobs and income from a misguided attempt at maintaining an artificially strong exchange rate.

      Higher import prices are a small price to pay for all that. Especially since it appears that overall import prices are actually declining: