The recent depreciation of the ringgit against the greenback is a mystery, as falling oil prices should strengthen the economy, said an economist.

According to Mohamed Ariff, a professor at International Centre for Education in Islamic Finance (Incief), Malaysia is a net importer of oil, which means domestic industries will benefit from cheaper oil.

"It is more profitable to export our low sulphur content oil, and to import the Middle East variety.

"(So declining oil prices) would be bad for the government because it depends too much on oil, but it should have been good for the economy," he said.

Mohamed was speaking during the launch of the United Nations Economic and Social Commission for Asia Pacific (Unescap) economic and social survey of the region for 2015 in Kuala Lumpur today.

The survey studies economic growth vis-a-vis social inclusiveness in the Asia-Pacific region. The report attempts to highlight that economic growth should not come at the expense of income inequality.

Fundamentals are strong

When pressed further on his claims, Mohamed said it was a mystery that defies economic theory.

"Our economic fundamentals are stronger than Thailand [...] (Yet), the baht is performing (comparatively) stronger than the ringgit despite the political turmoil there.

"All this flies in the face of textbook theories, so there's something that's unexplained. We do not know what is really contributing to this situation," he said.

However, he dismissed suggestions that the weakening ringgit fell victim to speculators but acknowledged that the raising of interest rates in the US could be a factor, thus driving demand for the dollar.

The ringgit was around RM3.20 to USD1 a year ago, but it has been steadily climbing since September last year, peaking at RM3.73 to USD1 in mid-March.

Note from the speaker: I think I owe an explanation to all those who cared to comment on the above news article. I was the speaker quoted. I am afraid that I have been misunderstood.

All I had said was that the recent sharp ringgit depreciation remains unexplained by the authorities. One can't find answers in the macroeconomic indicators which look fairly good.

This does not mean that the ringgit weakness is inexplicable. Non-economic factors might have weighed heavily on the ringgit performance. Confidence crisis and credibility concerns could have contributed to the ringgit woes.

I pointed my fingers at one plausible explanation, i.e. capital outflows which bypass the banking system. I am not referring to FDI and portfolio flows which are recorded and accounted for.

I am referring to the unusually large errors and omissions in the balance of payments data. The authorities should shed some light. Thank you.

- Mohamed Ariff