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KUALA LUMPUR (Aug 12): The weaker ringgit against the US dollar has had little impact on the rising food prices, which pushed up inflation to a 12-month high of 3.4% in June, according to Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus.
Speaking at the press conference during Malaysia’s second quarter of 2022 (2Q22) economic data release, the central bank governor also pointed out that the local note was holding up well against the currencies of its trading partners, with a 0.1% decline against the nominal effective exchange rate (NEER) in 2Q22.
“At the aggregate level, the pass-through [of the ringgit exchange rate] to the broader consumer price index (CPI) was still quite small relative to global commodity prices,” Nor Shamsiah said.
Nor Shamsiah gave the example of wheat, of which 20% of the increase in prices was contributed by the ringgit exchange rate, while it had a smaller impact of 8% on apples.
Other factors included logistic costs, labour costs, and weather conditions, to name a few.
Malaysia’s CPI rose year-on-year (y-o-y) to a 12-month high of 3.4% in June, from 2.8% in May, led by a 6.1% y-o-y increase in food prices, followed by transport (5.4%), and restaurants and hotels (5.4%).
Aside from supply chain disruptions and rising demand, the global inflation narrative was also clouded by the elevated commodity prices, including a 30% increase in crude oil prices and a 155% rise in coal prices so far this year.
Meanwhile, the central bank governor reiterated that the performance of the local currency was still stable relative to that of its key trading partners, which form the NEER basket of currencies.
In 2Q22, the ringgit depreciated 0.1% against the NEER. Against the greenback, the local currency declined 4.6% in the period, as opposed to the Singapore dollar versus the US dollar (-2.7%), Indonesian rupiah (-3.5%), and yuan (-5.2%).
The ringgit also depreciated 2.21% against the Singapore dollar in the quarter, and touched a new record low of 3.2517 on Aug 11.
At the time of writing on Friday (Aug 12), the local currency was trading at 4.4400 against the US dollar, and 3.2415 against the Singapore dollar, although it was stronger at 5.4162 against the pound, and 4.5797 against the euro.
“We are in an environment of a strong US dollar. With the US Federal Reserve’s increase in interest rates, all other currencies have depreciated [against the greenback].
“[The ringgit] cannot be much stronger than [the currencies of] our trading partners, because that affects our competitiveness also. We have to move away from our fixation towards bilateral exchange rates, and one way is to look at the NEER,” Nor Shamsiah said.
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