Malaysian Companies to Brace for Fallout of Ringgit!

Malaysian businesses are paying a high price for the country’s weak currency. Exporters are delighted but not importers or those with foreign currency debt.

With the ringgit hitting a 26-year low, industries from airlines to raw material-intensive sectors are particularly at risk.

The ringgit has slid to its lowest level since the Asian financial crisis in the late 1990s and the government has assigned the central bank to closely monitor the currency.

Source: https://medlav.com.my

Construction companies that depend on imported raw material, as well as telecommunication firms, whose capital spending are in dollars, also face a financial fallout. Airlines also face the pressure because fuel prices are paid in USD.

Some companies, such as state-owned oil and gas company Petroliam Nasional Bhd, are in a position to benefit from the plunge in the ringgit. A significant amount of its operations is either in foreign markets or pegged to the dollar. Sime Darby Plantation Bhd said the weak ringgit is beneficial for the company, as well, because its revenue is partially in dollars.

What can importers do? Hedge the transaction. It’s easier said than done. There are not many “brave” financial institutions for the hedge. In the end, the cost of the hedge could be exorbitant!

Importers need to work with their vendors to either accept ringgit equivalent or “fix” an exchange rate for their purchases (a forward rate).

Another alternative is for BNM to work with importers on providing a swap facility with the trading partner’s central bank (in the vendor’s country) so that currency fluctuations can be minimised.

BNM must have a blueprint for situations like this and assist importers in their predicament. Net food imports alone is above RM70 bil a year. That impacts cost of living, Then you have water, electricity, transport, SST all up (or going up)! So, we do need a strategy to minimise exchange rate fluctuations

Reference:

Malaysian companies brace for costly fallout as ringgit hits 26-year low, TheEdgeMalaysia, 27 February 2024