Weak currency makes Malaysia more competitive

ANN/THE STAR – The current ringgit rate would offer a competitive advantage for Malaysia’s exports to the United Kingdom (UK), besides boosting the local tourism industry, said analysts.

SPI Asset Management managing director Stephen Innes said a strengthened pound sterling would make Malaysia an attractive and affordable travel destination for UK travellers.

“The appreciating pound will go further for UK travellers and make Malaysia an attractive travel destination.

“In terms of trade, Malaysia currently imports more from the UK than it exports. Malaysia’s exports are at nearly USD2.5 billion to the UK. Hence, we could see exports going up and demand start accelerating from the UK,” he told Bernama.

Nevertheless, Innes said increasing wage pressure in the UK is raising expectations for higher interest rates. The expectation is for the Bank of England (BoE) to hike interest rates beyond six per cent.

Last month, the BoE raised the interest rate by 0.5 percentage points to five per cent in a move to tame stubborn inflation.

“The wider differentials in interest rate between Malaysia (three per cent) and the UK could also lead to further easing of the ringgit,” he said.

On Tuesday, the ringgit weakened against the British pound to 6.0136/0187 from 5.9785/9836 on Monday, breaching the MYR6 mark to GBP1.

However, at the time of writing, the local note improved against the British pound to 5.9828/9913 from 6.0120/0165 yesterday.

The last time the ringgit slipped to MYR6 against the pound sterling was on May 31, 2016, when the exchange rate stood at 6.0299.

The ringgit was not the only currency that fell against the pound this year, which has also strengthened against other regional currencies and the greenback, making it one of the top-performing currencies in 2023.

Meanwhile, Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said UK’s inflation has been sustained at 8.7 per cent in April and May after hitting its peak at more than 11 per cent in October last year.

“The BoE has managed to bring down their inflation rate but still fell short of the two per cent target,” he pointed out.

Mohd Afzanizam also said the bank might want to keep raising the interest rate further, given that their labour market has been tight, whereby a high demand for labour could lead to higher wage growth.

“In the process, it might result in further appreciation of the pound sterling but again, the BoE would be more cautious as they want to ensure the economy would not be so affected as they hope for a soft landing in economic growth,” he said.

According to reports, British wages excluding bonuses hit their joint highest growth rate on record, rising by 7.3 per cent in the three months to May 2023 from the same period a year ago.

Meanwhile, MIDF Research said it foresees the ringgit to benefit slightly from the easing inflation rate and expects the local note to appreciate gradually in the second half of 2023 (2H 2023), as chances of a rate pause rise.

In a note today, MIDF Research maintained its year-end forecast for the ringgit to touch MYR4.20 per US dollar.

The United States (US) consumer inflation decelerated to three per cent year-on-year in June 2023, the lowest level since March 2021, and marginally lower than the 3.1 per cent expected.

The ringgit extended its positive run against the US dollar at today’s opening as the greenback weakened due to the lower-than-expected United States consumer price index (CPI) data in June 2023.

At 9am, the local note climbed 310 percentage in point (pip) to 4.6190/6230 against the greenback compared with 4.6500/6535 at Wednesday’s close.