Uncovering the culprits behind the ringgit’s unprecedented weakness

It has fallen 11% since August.

The Malaysian ringgit has been on a protracted and unprecedented slide in recent months. Since August, the ringgit has fallen 11% from its highs against the US dollar, hitting a level last seen in the global financial crisis of 2008.

According to UBS, the ringgit’s decline can be broken down into two distinct periods. From August 27 to November 27, the ringgit weakened a little over 6%, a steeper decline compared to the 2.5% to 4.5% slips in other SE Asian currencies.

Then, the ringgit fell another 4.1% since November 27, coinciding with the drop in oil prices post the opec meeting and the release of unfavorable Malaysian trade data.

“The lower oil price promises to adversely impact Malaysian income growth given the country's position a
a net oil and gas exporter, while the lower October trade surplus implies a diminished margin of surplus savings with which to manage the income shock. The weakness in the ringgit is likely based on a combination of the stronger US dollar and the lower oil price on top of already slowing growth momentum – implying weak growth and lower policy interest rates,” noted UBS.

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