Institute for Democracy and Economic Affairs (IDEAS) manager for external relations Azrul Mohd Khalib said while this may only be a shock reaction to the US presidential election results, if Trump proved to be anti-trade, a rise in the inflation rate may be unavoidable.
He was commenting on the ringgit’s sudden drop of more than RM0.20, or about 3.5 per cent, trading at RM4.484 against the US dollar as at 11am today.
“This (the currency drop) is just a temporary setback and hopefully the ringgit against USD rate will rebound in the next few weeks.
“The global market is merely adjusting to Trump’s presidency.
“However, if the incoming president is anti-trade, the situation will be bearish for most Asian currencies which are dependent on US trade.
“The current situation will then turn from short-term to long-term,” he told FMT.
Azrul added that the ringgit will also continue to be at the same alarming rate, or even worse, if Trump carries out his promises related to loosening oil and gas regulations, which in turn will cause oil prices to drop.
The one advantage of this situation, he continued, was that Malaysian goods, which are cheaper than others, will become more attractive to international market players.
This will increase the country’s exports, benefiting small businesses but only if their goods are of high quality and are competitive enough.
When asked as to the country’s debts and the effect that the currency drop will have on this, Azrul said:
“Unless there is a drastic commitment and action to reduce the deficit and national debt, due to Malaysia’s import volume of RM508 billion (January to September 2016), we could end up having a trade imbalance (less exports and more expensive imports) with debt growing bigger.
“We could have increased inflation. So the situation is dependent on whether Trump realises his promises on trade and foreign policy.
“If he does, the situation will be more long term. So the markets will observe and respond to who he appoints to his Cabinet. These will be the indicators.”
The Malaysian ringgit had also dropped by more than RM0.15 against the Singapore dollar in the first two hours, to trade at RM3.179 as at 11am, compared with RM3.0209 when trading opened today.
This came after Trump surprised many by defeating the more trade-friendly Hillary Clinton in the US’ 2016 presidential race on Wednesday.
Meanwhile, when contacted, an economic expert from Tun Abdul Razak University, Dr Barjoyai Bardai, said the currency drop may have been a result of panic that subsequently drove Malaysian traders to start disposing of their ringgit.
Echoing Azrul’s prediction that the panic may only be short-term, Barjoyai said the concern now is over the possibility that it is not.
This is because a long-term currency drop may, among others, increase petrol prices by five to 10 per cent.
“On top of that, small traders involved in importing goods such as food, electronics and textiles, will face a price increase which would see a shrink in their profit margin,” added Barjoyai.