KUALA LUMPUR: The weakening ringgit is posing a significant challenge to businesses reliant on imported materials.
The local note was trading at 4.768 versus the greenback as at 5.30pm yesterday.
The ringgit dropping to 4.800 against the US dollar recently was a symptom of the fall in Malaysia's competitiveness since the Asian financial crisis in 1998, said economists.
They added that companies directly selling imported products or using imported parts, materials or intermediate goods were feeling the pinch due to the higher costs across the board.
"For companies selling imported products domestically, the higher costs may lead to decreased competitiveness against domestic alternatives, as they may have to raise prices to pass on the higher costs to consumers," said Malaysian University of Science and Technology's Professor Dr Geoffrey Williams.
Airlines will most likely face turbulence with the weakening ringgit.
Sobie Aviation Pte Ltd independent analyst and consultant Brendan Sobie said the aviation industry was particularly vulnerable to currency depreciation
as a substantial portion of airline costs was fixed in the US dollar.
This could result in higher airfares for passengers, potentially impacting travel demand in Malaysia, a market known for its price sensitivity.
"Higher fares are needed to cover rising costs but Malaysia is a price-sensitive market and discretionary income (or the amount of money the average person has to spend on travel) will be impacted as the everyday costs increase," he added.
Aviation consultancy Endau Analytics founder and aviation analyst Shukor Yusof said the depreciating ringgit was a double-edged sword.
A weaker ringgit makes Malaysia an attractive destination for foreign tourists and investors, as their foreign currency goes further in the country.
"This can potentially boost tourism revenues and attract more foreign direct investment."
However, Shukor said it was detrimental to airlines as their operating costs, especially jet fuel, aircraft leases and parts for maintenance were denominated in US dollar while income generated was in ringgit.
Meanwhile, US dollar sellers are set to gain from the ringgit depreciation.
Williams said industries selling in dollars, such as oil and gas, palm oil and commodities, were among the key beneficiaries of the depreciating ringgit.
Similarly, he said electrical and electronics companies that sell their products in US dollar could benefit from the weaker ringgit.
However, the benefits may be offset by higher costs for imported components, highlighting the complex interplay of factors at play.
"Exporters and Malaysian investors overseas will have a good opportunity to repatriate profits and investment returns at a high exchange rate of 4.70 to 4.80, which may not last for long," he said.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the depreciation of the ringgit was having a multifaceted impact on the country's economy, with implications for both businesses and households.
He said the higher import costs for food-related items, automotive parts and accessories, fertilisers, machinery, and equipment were driving up business costs and living expenditures for households.
On the flip side, Afzanizam said the tourism sector stood to benefit from the weaker ringgit.
"Foreign tourists will find Malaysia more affordable due to their increased purchasing power when converting their currencies to the ringgit," he added.