KUALA LUMPUR – The ringgit is likely to stay weak in the first six months of 2024 as Malaysia grapples with China’s economic slump, a strong US dollar and delayed economic reforms at home, but the currency’s plunge has bottomed out, say analysts.

The ringgit hit a 26-year low on Feb 20, falling to RM4.7965 against the US dollar, its weakest level since the 1998 Asian financial crisis when it hit RM4.8850.

The currency also hit an all-time low of RM3.56 against the Singapore dollar the same day.

But OCBC Bank currency strategist Christopher Wong said: “We may have passed the worst for the ringgit.”

He told The Straits Times: “The ringgit’s weakness will be temporary and will gradually start to fade off after certainty on when the US Federal Reserve will cut interest rates and a recovery in China’s economic growth in the second half of 2024. But this may require patience.”

Like other analysts, Mr Wong is banking on a gradual recovery in Malaysia’s exports to revive the ringgit, driven by an anticipated growing demand for semiconductors and economic rebound in China, the country’s largest trading partner.

The government has also indicated it could defend the ringgit as well as implement economic reforms, which should also help stabilise the currency.

Mr Wong expects the currency to gradually strengthen to RM4.60 by the end of the year. But it will likely trade in the range of RM4.72 to RM4.76 against the greenback for the first half of 2024, and average at RM4.71 for the whole year, he said. The 2023 average was RM4.56 to the US dollar.

Malaysia’s Second Finance Minister Amir Hamzah Azizan was slightly more optimistic, estimating on Feb 29 that the ringgit would rise to RM4.50 against the greenback by year-end on the back of higher economic growth of between 4 per cent and 5 per cent.

He said the central bank is prepared to sell US dollars from its reserves to restrict excessive weakness in the currency.

By March 4, the ringgit had slid close to 3 per cent since the year began to RM4.73 to the US dollar, and about 1.2 per cent against the Singapore dollar to RM3.52.

The ringgit’s weakness since Dec 30, 2023, was triggered by the contraction of Malaysia’s trade surplus as imports increased more than expected, while exports extended their weakening trend, said Malaysian Institute of Economic Research economist Shankaran Nambiar.

Malaysia’s trade surplus narrowed to RM10.12 billion (S$2.87 billion) in January compared with RM18.16 billion a year ago, with imports growing faster than exports. Imports grew 18.8 per cent in January from a year earlier, exceeding export growth of 8.7 per cent for the same period, data from the Ministry of International Trade and Industry (Miti) showed.

“When Malaysia earns less from exports and spends more on imports, it sparks concerns as to whether the demand for the ringgit can be sustained. This dents investor sentiments and weakens the ringgit,” Dr Nambiar said.

The January export growth numbers marked an upturn, after 10 consecutive months of slowing exports. But the ringgit remained weighed down by shrinking exports to China, which fell 7.6 per cent in January from a year ago on lower shipments of electrical and electronic goods.

However, analysts say the ringgit is expected to gradually strengthen by year-end, driven by potential interest rate cuts in the United States, as well as anticipated higher semiconductor sales. Malaysia is the world’s sixth-largest semiconductor exporter, with a global market share of about 7 per cent. 

Miti Minister Tengku Zafrul Aziz said the government’s plan to diversify exports to other markets, leverage trade liberalisation agreements and implement economic reforms will result in sustainable economic growth and a stronger ringgit.

“The government’s commitment to structural reforms and policies is pivotal to sustainable growth, which will ensure strength of our currency and economy,” Datuk Seri Zafrul said.

He was referring to policies such as achieving net-zero emissions by 2050 and boosting the manufacturing sector’s gross domestic product by 6.5 per cent annually over the next seven years. The government has also shifted to targeted subsidies for fuel and electricity, as well as tax hikes.

Maybank chief forex strategist Saktiandi Supaat expects the ringgit to strengthen to RM3.30 against the Singapore dollar by the end of 2024.

For now, though, ordinary Malaysians will have to make adjustments to cope with the weaker ringgit.

Ms Aarti Dhillon, who lives in Johor, has stopped hopping over to Singapore for the weekend because “there is no value in the ringgit”.

“I used to go to Singapore to buy imported cheese and hang out for breakfast, but now... it has to be for something special. A simple breakfast for two in a boutique cafe with two coffees and two croissants would cost me around RM140,” said the 44-year-old manager.

Malaysian student Amanda Mei Chandran, 20, who is studying at Temasek Polytechnic in Singapore, said it is getting tough for her father, who is the sole breadwinner, to afford the tuition fees of $1,500 per semester.

“I have to cut my expenses on electricity and meals. I don’t use the air-conditioner in the house any more, and skipping meals has become part of my daily routine.”

Travel enthusiast Priscilla Patrick said she packed food from home for her one-week trip to Norway in January.

“I lived on just pies and pastries when I was in Oslo because a fast-food burger would have cost me RM78. A restaurant meal would have cost me about RM300, which is the price of a return ticket on a budget domestic flight in Malaysia,” said the 53-year-old, who owns stargazing campsite Cosmic Campers.