The Malaysian Insider
4 August 2015

The ringgit can be expected to deteriorate further if Malaysia does not solve its confidence crisis stemming from political instability in the country.

Malaysian Institute of Economic Research (MIER) executive director Dr Zakariah Abdul Rashid said lack of public confidence is the key factor resulting in the weakening ringgit, should crude oil prices remain stable.

“The political situation is complex – from the lack of confidence on how 1MDB is handled to the Cabinet reshuffle – these have put pressure on investors’ confidence and the ringgit,” he said during MIER’s 13th national economic briefing.

Zakariah, however, pointed out that should the Cabinet reshuffle result in a more effective administration, this will help to restore confidence in the economy.
Nevertheless, at this juncture, he opined that the current level of RM3.86 to US$1 “may not be the floor” as it could worsen before it gets better.

Indeed, Zakariah did not rule out the possibility that the ringgit could fall to RM4.00 against the US dollar should crude oil prices slip further.

“The level of international reserves have also been falling and the fear is that it will breach the psychological threshold of US$100 billion, which may be a cause for triggering a credit rating downgrade,” said Zakariah.

Since the ringgit is managed based on a managed float regime, Malaysia might risk not having sufficient international reserves to back the ringgit when it needs reserves, he added.

In July 2005, Malaysia scrapped the ringgit’s peg to the dollar and adopted the managed float system, with its value determined by economic fundamentals and monitored by the central bank against a currency basket to ensure it remains close to fair value, to avoid speculation on the exchange rate. – The Edge Markets, August 4, 2015.