- KL (May 19): ringgit past 4.4 against USD first time since Covid in March 2020
- Over one year, ringgit between 4.1070 – 4.4078 against USD
- last time ringgit weakened past 4.4 against USD was March 2020.
- ringgit’s weakening reflects heightened economic uncertainties
- Higher inflation rate, business costs rising, affecting profit margin
My comments :
My advice to Bank Negara is do not waste our Forex Reserves to “support the Ringgit”. That will be a wasteful measure with no guarantee of achieving anything useful.
Dr Mahathir suggested to peg the Ringgit to the USD again. At what rate and this time will the peg hold? This time not only the Ringgit is weak but the USD is also facing an uncertain future.
To peg the Ringgit will also burn through plenty of our Forex Reserves because the Central Bank must have a lot of USD in our Forex Reserves to make good on the promise to keep the peg. Only then the peg will work.
The peg will likely work better If it is set slightly above the market rate. Say the market rate is RM4.40 vs USD. A peg will work better if Bank Negara pegs the RM at say RM4.4x to the USD. So Bank Negara undertakes to pay more for the USD. But that will burn our Forex Reserves quicker.
Lets say all the Money Changers are offering RM4.40 for 1 USD. Suddenly one Money Changer offers RM4.41. Surely everyone will rush to him. He will collect a lot of USD but he will run out of Ringgit sooner.
And if we overvalue our money and set the peg too low then the peg will not work. In such a case a blackmarket will develop which pays more Ringgit for each USD than the official peg rate.
And please watch out for the Forex crooks offering sincere advice. They are just looking for inside information to make a killing from insider trading. They have done it before and they will do it again.
The Ringgit reflects the situation in the country. We should be making things, manufacturing things, importing, exporting, going about our businesses. This is not happening as well in Malaysia. They even cut down 15,000 durian trees !!
When the country is full of crap, then the Ringgit will also become crap.