KUALA LUMPUR: The Malaysian ringgit has been depreciating against the US dollar since late August this year, and fell to 3.49 last Friday, the lowest since mid-2009. Theoretically, weaker currencies should augur well for exports, but economists view that this may not be the case now.

“I think exports will still remain to be subdued in the remaining months of the year,” former CIMB chief economist Lee Heng Guie said when contacted last Friday.

He explained that this was simply because other regional currencies had depreciated in tandem with the stronger greenback, which negated Malaysia’s weak currency export competitiveness.

In spite of that, Lee admitted that certain industries, for instance tourism and services, would benefit from the weaker ringgit. As these industries have less exposure to imports they do not incur high variable costs which usually increase in tandem with sales.

The weak local currency could, to some extent, cause a headwind as most export-oriented industries need to import inputs such as raw materials to support their operations, resulting in higher costs.

According to the latest statistics, the growth rate for exports has been slowing down with 4% in August, 1% and 0.9% in September and October (see table).

Although the trade balance remains in a surplus position, it significantly narrowed to RM1.19 billion in October, a 87.25% drop from September’s RM9.33 billion.

The scenario was rather peculiar, especially in October, after a 4.1% depreciation of the ringgit, exports merely grew less than 1% .

An economist, who declined to be named, said the export volume in 2015 will grow at a slower pace of 1% to 2%, even though certain commodities such as palm oil exports are likely to increase.

He believed that the slow export growth is mainly due to the weaker macroeconomic data from China — a major export destination accounting for 13.5% of Malaysian exports.

Nevertheless, former RAM Ratings group chief economist Dr Yeah Kim Leng viewed that the depreciating ringgit would help boost export volumes as Malaysian products become even more affordable for importers abroad.

He agreed that the depreciation in Asean currencies, including the ringgit, was due mainly to the strengthening US dollar. But the fall in the Malaysian currency is sharper partly due to the country’s heavy dependence on oil revenue.

Since August, the ringgit has depreciated 11% to RM3.49 against the US dollar, the most compared to its peers. The Indonesian rupiah fell 7% against the greenback, followed by 5% for the Singapore dollar, while the Thai baht and the Philippine peso fell 3% and 2% respectively.

Yeah expects November and December export data to see a slight rebound of 2% to 3%.

“It was the ringgit sentiment and inflation expectation that dragged the currency (ringgit), so I believe there will be a normalisation in the near term,” Yeah told The Edge Financial Daily.

He explained that currently the ringgit is undervalued, saying that it should be hovering at 3.30 against the US dollar.

This article first appeared in The Edge Financial Daily, on December 15, 2014.