The Malaysian ringgit has seen a sharp decline in value against major currencies like the US dollar in recent years. This depreciation of the local currency has had a significant impact on Malaysian citizens, leading to reduced purchasing power and straining household finances due to rising costs of living.
Coping with a Weakened Ringgit
For 39-year-old entrepreneur Wendy Yun, the weak ringgit has been a difficult adjustment. Wendy runs a specialized hair and scalp treatment spa in Johor. However, she worked for around 10 years in Singapore as an accountant before starting a family in Malaysia. During that time, Wendy benefitted from the strong exchange rate, which was around 2.8 ringgit to 1 Singapore dollar. This provided her strong purchasing power whenever she returned to Malaysia for personal trips and spending.
However, after getting married and having four children in Malaysia, her financial situation changed significantly. With a family to support and earning in ringgit, the currency depreciation has squeezed her finances. Wendy shared, “With the Malaysia ring depreciating, yes we feel the pinch of rising cost of living.”
Wendy and her business partner invested their own savings to start their hair spa business in Johor earlier this year. They are seeing good traffic from Singaporeans who cross the border for weekend getaways. However, the weak ringgit has inflated operational costs, from imported hair products to rental, utilities and staff salaries.
Wendy laments, “The product costs have increased tremendously. We are imported all the products and it’s all natural plant-based and at the same time the cost of the rentals, the cost of the utilities…I have to make sure that my good staff stay with us that we provide them like good accommodations so this all expenses getting into our financial cash flow and it does impact me.”
Adjusting Travel Plans
Besides increasing business costs, the weak ringgit has impacted Wendy’s personal finances and family lifestyle as well. She shares, “My family is quite big so when last time we have the when we only me and my husband and maybe just two children we can have the luxury to maybe travel to overseas more frequently like maybe once or twice a year…but now because of the weakening of the Ringgit and everything so when we make decision on family holiday we will look around more in Malaysia like is there any place to go that’s equivalently you know nice and yeah so we will budget a little bit more on family travelling.”
Investing Overseas to Hedge Against Ringgit Decline
According to analysts, one way Malaysians can protect against a declining ringgit is to avoid having all their wealth tied to the local currency. Instead, citizens are advised to transfer funds into value-preserving assets denominated in foreign currencies. This provides a hedge as those assets benefit from a weaker ringgit. As one analyst explained, “If you are actually invested abroad rather than in Malaysia, the benefits are triple full double full and you could benefit from that.”
A common method is to convert some savings into stable foreign currencies like the US dollar or Singapore dollar. Banks and financial institutions provide currency conversion services that facilitate this. Another way to hedge is investing in physical assets like gold bullion. For those with a higher risk tolerance, investing in global stocks and equities provides potential upsides. As an analyst noted, “At least stocks and equities they do provide provide a certain return right so you can invest into companies that pay you a dividend and and a year in year out if the company is stable in terms of the business model the predictability of the company paying out dividends is actually cash going back into your pocket.”
Adjusting Lifestyles and Spending
Beyond financial investments and conversions, Malaysians are also adjusting their lifestyle and spending habits to cope with reduced purchasing power. For example, households may cut back on discretionary spending and imported items which are more expensive due to the weak ringgit. One analyst advised, “If possible you can find domestically produced Goods which are priced in ringgit and with lower cost of production because of domestic cost which are much more conducive to foreign cost.”
Wendy and her family have also become more prudent with their everyday spending. She explains, “First we have to be more careful in our spending like we try to eat at home more rather than eating out…and also if there’s larger spending we we either delay the spending or we think twice if that’s necessary.”
Long-term Outlook Remains Gloomy
Unfortunately, analysts predict the Malaysian ringgit will remain weak for the foreseeable future, barring major changes in economic fundamentals. This means citizens will likely have to continue adjusting their financial planning and lifestyles for reduced purchasing power. However, analysts emphasize the sooner people adapt, the less painful it will be. As one economist concluded, “Now is a very good time to actually make the adjustments soon so that when the weakening RNG comes to play in the entire value stream then at least they won’t be forced to actually make a sudden switch from a much more comfortable life into a much more less comfortable life if they really need to eventually Embrace the downgrade in terms of their lifestyle.