IF you are heading overseas, have children studying in the United States and Australia and feeling the pinch, the Malaysian Institute of Economic Research (MIER) has bad news for you: the ringgit will remain weak for a while.

The research institute said bickering between political parties and heightened speculation that the general election will be called this year are continuing to drag down the ringgit’s performance against the US dollar and other regional currencies, such as the Thai baht.

The negative sentiment against the ringgit has led to capital flight, said MIER, adding that the currency’s poor performance is expected “to last a while”.

Investor and currency speculation are some of the non-economic factors that will continue to have an impact on the ringgit, said MIER executive director Dr Zakariah Abdul Rashid.

In the past, other economists have said that the ringgit’s depreciation against the dollar has had raised directly and indirectly the prices of food due to the higher cost of importing raw materials.

As an oil-producing nation, the ringgit’s decline in 2015 was attributed to the collapse in the price of global crude, which fell from US$102.10 a barrel in January 2014 to US$36.57 in December 2015. The ringgit’s drop mirrored that of the drop in crude oil prices, dropping from a high of RM3.16 per US$ in August 2014 to a low of RM4.40 in November last year, according to MIER’s 2017 first quarter report.

Moves by Bank Negara to clamp down on currency speculators last November have also rattled foreign investors.

“There is a big depreciation and large gap between other currencies compared with the ringgit. This is a due to a combination of factors, both economic and non-economic. We do not know which one is stronger but we can guess.

“When the ringgit departs from the value of other currencies in the region, we can say that it is especially because of the non-economic factors,” Zakariah said at a briefing on the MIER report in Kuala Lumpur yesterday.

MIER’s analysis showed that the ringgit’s depreciation to the dollar was roughly at the same rate as that of the Thai baht, Singapore dollar and Chinese yuan until May 2015. In June, it worsened against the US dollar compared with these three regional currencies.

The MIER report showed that the ringgit’s performance against the US dollar is worse than that of the baht to the greenback. This is despite the Malaysian economy faring better with growth at 4.2% in 2016 compared with Thailand’s growth rate of 3.2%.

“Non-economic factors influence feelings and sentiments on the economy. I may say that the economy is strong and resilient but market players may think otherwise. I only look at economic factors but there are non-economic factors,” he said.

“Such as the politics of this country, the debt levels, the general election that may happen this year, and how the opposition and ruling party present themselves. These are non-economic factors that are influencing the ringgit’s performance.”

MIER senior research fellow Dr Zulkiply Omar said the normal trend for the ringgit was to move in tandem with other regional currencies, such as the baht and yuan because of similar economic fundamentals.

“The deviation of ringgit from that normal pathway is due to non-economic factors which include portfolio reversals because of local and external factors. This last type of factor includes the US increasing their interest rates and leading to capital outflows.”  – April 19, 2017.