Ringgit’s rise to continue irrespective BNM’s decision on rate hikes

By MARK RAO & NG MIN SHEN / Graphic By TMR

The ringgit which is the among the world’s best performing currency, is expected to continue the rally irrespective of the monetary authority decision to hike interest rates.

Affin Hwang Investment Bank Bhd senior director and head of equity capital markets Arvin Chia said the ringgit’s fine performance has been largely due to improving crude oil prices, a low base and the strong economic data.

“A 25 basis points (bps) interest-rate hike will not make or break the ringgit. The real factor behind the strengthening is in the last two years we were the worst performing currency in Asia. So, we’re coming off a low base.

“Oil prices have also improved in the last couple of months,” he told The Malaysian Reserve.

He said the encouraging gross domestic product (GDP) growth has also boosted the currency.

“If there is an increase in the interest rate, there may be a marginal jump in the ringgit, but it won’t be a huge one,” he said

He said while the market ant icipates Bank Negara Malaysia (BNM) to raise the Overnight Policy Rate by 25bps at its Monetary Policy Committee (MPC) meeting today, there is also the possibility that such rate hike may be postponed. The next MPC meeting will be held on March 6 and 7.

Over the past year, the ringgit has rallied some 11.8% to close at a fresh 20-month high of 3.9115 against the greenback as of 6pm yesterday.

Chia said the ringgit is retracing its steps after taking a beating from perceptionbased issues rather than underlying factors.

“Our house view is for a high of RM3.80 during the first half (1H) of this year and a weakening down to RM4.05 in the 2H. The weakening is in anticipation of US interest-rate hikes.”

Affin Hwang Asset Management Bhd MD Teng Chee Wai said the undervalued ringgit is starting to find its footing due to policies which favours the local unit, including the requirement for local exporters to convert 75% of their earnings into local currency.

He said the weaker dollar is also providing further support for the ringgit to test the RM3.80 psychological mark — the level that currency was pegged in 1998 after the Asian financial crisis.

“Today, the US dollar is not the preferred currency globally compared to two years ago,” he said yesterday.

“A reversal has taken place. Investors are abandoning the dollar and keeping other currencies such as the Japanese yen, euro and emerging-market (EM) currencies for trade.”

Oanda Corp head of trading for Asia Pacific Stephen Innes said the ringgit is in a favourable position heading into today’s MPC meeting, boosted by the firmer oil prices and broadbased US dollar weakness.

“It is also aided by positive risk sentiment on the back of the International Monetary Fund’s report that suggested we are in the broadest synchronised global growth spurt since 2010.”

He added that the recent decision by the US government to impose tariffs on solar panels and washing machines is a cause for concern for EMs.

“Asian EMs will be following these developments closely as trade-related fears are probably the most prominent external risks since most regional economies are very trade-oriented.

“However, given the ringgit is less sensitive to external shocks than surrounding currencies due to surging oil prices, the local tender will backtrack less than regional peers,” Innes said.