MALAYSIAN exporters will gain from the continuously depreciating ringgit while the public will be the biggest losers as importers contemplate passing on the added cost to them, driving inflation rates higher, experts say. 

Sunway University economist Dr Yeah Kim Loong said the sliding ringgit meant the public would have less purchasing power. 

“Imports will become more expensive, travel and investing abroad will be more expensive too,” Yeah told The Malaysian Insight. 

“Importers will bear a high cost and higher inflation while exporters will gain foreign exchange when converted into ringgit; they will gain more from higher revenue in ringgit terms.  

“It is this uneven impact that you see on importers, especially as they face greater cost pressure. Whether or not to pass it to consumers will be a challenge for them.” 

Yeah said importers would have to make business decisions on whether consumers would respond to further price increases. 

“It all varies according to elasticity, whether when prices increase consumers cut down on their purchases or will they switch to cheaper substitutes,” Yeah said. 

The ringgit continued to weaken against the greenback when it traded at 4.5340 at Wednesday’s close. 

Exporters of commodities such as palm oil, liquefied natural gas, and petroleum, which account for 80% of all commodities have, however, benefitted from the low ringgit. 

Malaysia’s inflation, as measured by the Consumer Price Index, rose 4.4% year-on-year in July as the index’s food and non-alcoholic beverage component remained as the main contributor to inflation, the Department of Statistics Malaysia said. 

Meanwhile, Bank Negara Malaysia’s Monetary Policy Committee raised its overnight policy rate by 25 basis points to 2.5% last week, the third hike in recent months. 

Prof Rajah Rasiah of Universiti Malaya said Malaysia’s current account was strong, which suggested that the capital account—capital expenditure and income—was low, hence the falling ringgit. 

“I am saying this with the feeling that the Central Bank is not printing additional money,” Rasiah said. 

“An appreciating ringgit can discourage exports of commodities, including electric and electronics exports.  

“Nevertheless, while on the one hand, the time is opportune to seek market-based ways to stimulate a rise in the ringgit—as geopolitical reasons are strongly driving relocation to Malaysia and exports—but on the other hand, it could aggravate further food trade imbalance if sufficient efforts are not taken to step up production domestically.  

“A rising ringgit can also cheapen further food imports thereby destroying domestic production, which is one of the reasons why food trade balance became negative in 1989 and worsened as the ringgit rose gradually from 1990 to RM2.40 against the dollar in early 1997.” 

Meanwhile, Chin Chee Seong, secretary-general of the SME Association of Malaysia said small and medium-sized enterprises (SME) involved in the export business were gaining from the weaker ringgit. 

“SMEs accounted for 18% of the total export for the country. The shrinking of the ringgit probably only benefits those in this category,” Chin said. 

“But overall, as most SMEs are in the trading business and many are relying on imported products or raw material, the shrinking of ringgit will directly hit them on cost.  

“They have to pay more for similar products. This will then be passed back to the consumer.  

“Consumers will surely look for other products which are cheaper or spend less. This will affect the sales turnover and result in less revenue,” he added. – September 16, 2022.