PETALING JAYA: While there are high expectations that the ringgit will continue to rebound in 2018, the currency may be placed at risk if there are significant changes in global oil prices.
According to a report in The Edge today, a sharp fall in oil prices would put pressure on the government’s fiscal position and in turn hurt the ringgit.
This is despite the implementation of the goods and services tax since April 2015 which helped to reduce reliance on oil revenue, it said.
It said crude oil was currently trading at near post-glut highs or around US$65 (RM264) a barrel largely due to a production cut agreement between the Organisation of the Petroleum Exporting Countries (Opec) and some non-Opec members like Russia.
Although the agreement is set to last till the end of the year, it could be tested by factors like the political tensions in the Middle East and a resurgence in shale oil production in the US, the report said.
Besides depending on oil prices, the ringgit’s strength also hinged on the local economy’s ability to deliver strong growth as was seen in 2017, it added.
“The year saw gross domestic product (GDP) grow 6.2% year on year (y-o-y) in the third quarter, shattering all expectations,” it said.
“With the economy expanding at its fastest pace in nearly two years, full-year GDP growth (in 2017) is now expected to hit 5.8% y-o-y, up from 4.2% y-o-y (in 2016),” it added
It said while expectations for 2018 had been revised in the light of strength shown last year, the consensus was for growth to decelerate to around 5.2% this year.
The report said another concern for the ringgit was inflation, which had picked up last year to an average 3.9% y-o-y as at November, compared with 2.09% in 2016 and 2.1% in 2015.
On Dec 1, Bank Negara Malaysia (BNM) had announced new measures to encourage more domestic trade of the ringgit, including a requirement that exporters could only retain up to 25% of export proceeds in a foreign currency.
The central bank had said higher balances would need its approval.
As an incentive to have more cash kept in the country, it also said all ringgit proceeds from exporters could earn a higher deposit rate of 3.25% per year.
The new measures also stated that all payments among resident exporters should only be made in ringgit.
Bernama had reported last Friday that the ringgit had closed stronger against the US dollar at 4.05 compared with 4.08 in the previous Friday.