‘Possible’ for ringgit to reach RM4 by year-end, say economists

Malaysia’s tremendous growth in trade and GDP will strengthen the ringgit, says analyst


Malaysia’s tremendous growth in trade and gross domestic product (GDP) will strengthen the ringgit, which may hit as high as RM4 by year-end, said an economist.

Sunway University Business School economics Professor Dr Yeah Kim Leng said the local unit depends highly on the economy strengthening.

“The ringgit has been trading higher these days due to the above expectations performance of Malaysia’s economy, including the growth in trade and GDP.

“Since we have already reached RM4.19 in early September, I would say that it is possible for the ringgit to reach around RM4.10 to RM4 in December,” he told The Malaysian Reserve (TMR).

According to the International Trade and Industry Ministry, Malaysia’s total trade surpassed the one trillion mark in January-July 2017, with a value of RM1.01 trillion — a 22.7% increase from the corresponding period in 2016.

It was the fastest period that trade breached the mark, two months earlier than the normal trend.

This was supported mainly by trade with Asean, China, the US, the European Union, Japan, India and Taiwan. Exports increased by 22.3% to RM529.68 billion, while imports rose by 23% to RM478.71 billion — resulting in a trade surplus of RM50.97 billion.

Exports in July 2017 maintained steady growth momentum and recorded a value of RM78.62 billion, rising by 30.9% compared to a year ago. Exports posted stronger year-on-year growth than imports for the third straight month.

Meanwhile, imports were higher by 21.8% to RM70.59 billion and total trade expanded by 26.4% to RM149.21 billion.

The country has also recently performed well with a 5.8% economy growth in April-June from the same period a year earlier, well above a Reuters poll forecast of 5.4%.

Following the data, Bank Negara Malaysia (BNM) raised its 2017 growth forecast to above 4.8%, from the last forecast in March which predicted growth of 4.3% to 4.8%.

As such, BNM’s Monetary Policy Committee decided to maintain the Overnight Policy Rate (OPR) at 3% in its recent meeting, stating the current OPR level and monetary policy stance remain accommodative.

Meanwhile, AmBank Research head Anthony Dass said although the projection is also depending on the interest rate by the US Federal Reserve (Fed), it is very unlikely for the authority to increase the rate since the greenback is currently weakening following threats from North Korea.

“Previously, we expected the Fed to stick to its forecast of three interest- rate hikes in 2017, which would mean just one more before the year is over.

“However, it is unlikely to happen since the US dollar has been weakening and the central bank also outlined its plans to normalise its US$4.5 trillion (RM18.9 trillion) balance sheet,” he told TMR when contacted.

Since Sept 5, a few days after the South Korea Defence Ministry warned that Pyongyang might be preparing to launch another missile into the Pacific Ocean — an intercontinental ballistic missile theoretically capable of reaching the US mainland — the ringgit has strengthened against the dollar to RM4.19 last Friday from RM4.26.

Dass said that supposing an unfavourable scenario does happen between North Korea and the US, investors will be shifting their attentions to more stable currencies.

Investors will be putting their funds into safe haven currencies, including Malaysia’s ringgit. However, Dass added that this might be only a temporary sentiment.

Looking at the current performance, Dass projected the ringgit to reach an intraday high of around RM4.12 to RM4.15 at year-end.