Ringgit gets pounded by the sterling, falling to lowest level in 7 years

 

The last time the ringgit took a plunge to RM6 versus the pound was on May 31, 2016.

PETALING JAYA: The ringgit has taken a nosedive against the pound sterling, falling to its lowest level in seven years as it surpassed the significant threshold of RM6 to £1.

The last time the ringgit took a plunge to RM6 versus the pound was on May 31, 2016 when the exchange rate settled at 6.0069.

The ringgit shot past this psychological level yesterday, reaching a low of 6.0164 from the previous day’s close of 5.9785. It managed to recover slightly today, ending at 6.0120.

Nevertheless, the ringgit was not alone as the pound has remained solid against other regional currencies and the greenback this year.

Bank Muamalat Malaysia Bhd chief economist Afzanizam Rashid said the recent decline in the value of the ringgit against the pound is due to the difference in the interest rates.

“The Bank of England (BoE) policy rate is currently at 5% which is beyond the overnight policy rate (OPR) level of 3%. Coupled with the hawkish stance adopted by the BoE, it is likely that the sterling will continue to outperform the ringgit,” said Afzanizam.

Besides, the ringgit is expected to continue weakening against the pound as major central banks are only expected to shift their monetary stand towards the end of the year.

“This is due to the moderation in the global inflation rate which suggests that the past interest rate hikes have effectively brought down the inflation rate lower,” he said.

“Further, there are also signs of economic weakness starting to emerge, especially the business sentiments which have become more pessimistic, hence the change in major central banks’ stance would provide support for the ringgit by end of 2023,” he further said.

Improving confidence in the ringgit

The government needs to exhibit their economic reform agenda and be able to execute it in a timely manner to improve confidence in the ringgit among foreign investors.

“This may include subsidies rationalisation, new tax and governance (tabling of the Fiscal Responsibility Act) to ensure the resources are being put to a good use, and can bring gains in productivity and competitiveness,” said Afzanizam.

To recap, the pound has performed the best among major currencies so far in 2023. Its strength is due to anticipation the BoE will increase interest rates further as wages in the UK increased more quickly than anticipated in May while inflation remained sticky.

As a result of a significant increase in private-sector pay growth, it was reported that salary growth grew by 7.3% in the three months leading up to May compared to the preceding year.

Nevertheless, the pound appears to have risen the most when compared to the ringgit. Over the course of a year, it has increased by 14.8%, and year-to-date, it has increased in value by 13%. The exchange rate was 5.2907 on Jan 3 this year.

The historical reference of the rates between the ringgit and pound a year ago (July 2022) stood at 1.00 GBP = 5.4127 MYR compared to its current rate at 1.00 GBP = 6.0120 MYR - FMT