The exchange rate has always been an important topic of discussion, more so since the rapid decline in the value of the ringgit against the US dollar and Singapore dollar, and of late against the euro and pound sterling. A rapidly depreciating ringgit is cause for concern as it translates into falling purchasing power of the currency in global markets. This has broad implications for the people, as it means higher prices for imported goods and services — including commodities like animal feedstock, energy and food staples, capital equipment and intermediate goods as well as consumer goods — that will eventually translate into higher prices across the domestic economy. Yes, inflation. For instance, even the price of locally reared chicken will go up as the cost of imported feed like corn and soybean meal rises. This is what is happening today, a major factor that is driving up the cost of living. And there are many parents supporting the education of their children abroad. It is all the more worrying for households whose income growth is stagnating.
A few months ago, we articulated in detail the main factors that determine the exchange rate between two currencies — currencies are always traded in pairs — in the foreign exchange market. You can scan the accompanying QR codes for the two articles (published on April 10 and 17, 2023) for a quick refresher.
