RACIAL TENSIONS, MORE THAN POLITICAL UNCERTAINTY, CAN CAUSE RINGGIT TO DECLINE – ECONOMISTS

PETALING JAYA – Economists agree that politics has played a part in the performance of the ringgit in recent months, but also point out to external factors as the main cause for the currency’s continued decline.

Firdaos Rosli of the Institute of Strategic and International Studies (Isis) and Barjoyai Bardai from Universiti Tun Abdul Razak said factors linked to the United States had an impact on the ringgit.

An analyst with Fitch Solutions recently told Singapore’s Straits Times that “political uncertainty” under Pakatan Harapan was among factors to blame for the ringgit’s slide against the Singapore dollar.

The ringgit was RM2.936 against S$1 in April, but was RM3.0525 as of Dec 21.

But Firdaos said all major currencies have weakened against the US dollar since April, primarily due to US interest rate hikes, US-China trade tensions and higher oil prices.

He said from the Singapore dollar’s standpoint, the ringgit should have fared much worse than the Euro, Chinese Yuan, as well as the Australian and New Zealand dollars due to the change of regime in Putrajaya.

“Although the political situation of a country does affect currency movements, it appears that the external economy dictates how the ringgit behaves, more than other factors,” he said.

He said how much the political situation has had an impact on the ringgit is not clear.

But he said the government must come up with a long-term growth strategy based on the present political, economic and social realities.

He said that in projecting future growth prospects, most analysts are falling back on Pakatan Harapan’s election manifesto.

“It may not necessarily be the case. Until and unless the government realigns the promises to suit present domestic and external challenges, domestic political jitters will continue to linger in the near term.”

Barjoyai agreed that the weakening of the ringgit was due to the strengthening of the US dollar and the US government’s efforts to attract investors back to the country, a move which has affected a number of other countries around the world.

He said while political uncertainty was not a factor affecting the ringgit, the government should be mindful of the social unrest due to high living costs and unfulfilled election promises.

He said investors were also concerned with reports of racially charged protests from Malaysia, such as the gathering to oppose the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD) and the Seafield temple controversy which saw violent protests last month.

“I believe the markets are worried that the racial tension could worsen, and this is more of a concern to investors.”

– FMT