Business

Tuesday September 1, 2009

Analysts see flattish ringgit movement

By IZWAN IDRIS


Undervalued ringgit helps support Malaysian exports

PETALING JAYA: The ringgit is maybe one of the cheapest currencies in the region but it is often speculated it has been kept cheap to keep local exports competitive against regional rivals.

“We think the decision to keep the ringgit undervalued is to support exports and reserves,’’ Inter-Pacific Research head Anthony Dass told StarBiz in an e-mail reply.

Malaysia’s foreign exchange (forex) reserves stood at US$84bil as at end-July.

“Large forex reserves and external surpluses are a plus to deal with in export contraction and any revival of capital outflows,’’ he added.

The ringgit stood at 3.5225 against the US dollar last Friday, down 1.8% since January. It is the second-worst performing currency among emerging Asian countries.

Analysts expect a flattish movement of the ringgit in the coming months. OSK Research and AmResearch projected the ringgit to trade in a narrow range of between 3.50 and 3.55 for the rest of the year.

Malayan Banking Bhd chief executive Datuk Seri Wahid Omar told reporters last week that the ringgit would probably end the year at 3.50 and might strengthen to 3.40 next year.

A recent report by RHB Research Institute had forecast the ringgit to close the year at RM3.40, but expected the local currency to continue to lag behind its Asian peers.

Since July 2005, Bank Negara has adopted a managed float regime for the ringgit, where it is measured against a basket of undisclosed currencies.

This was after the central bank abandoned a fixed exchange rate of 3.80 against the US dollar that was in place since 1998 to prevent speculative attacks on the ringgit.

Over the past years, the ringgit exchange rate policy has been a contentious issue.

The ringgit hit a high of 3.13 in April last year, but fell sharply to a low of 3.73 by February this year as the financial crisis that erupted in the West about 12 months ago crimped economic growth worldwide.

Dass of Inter-Pacific said foreign direct investment into Malaysia was expected to contract 48% this year due to the economic slowdown, noting that in the first half, exports shrank 23% while imports dropped 26.3%.

“This trend enabled the economy to enjoy trade and current account surpluses as well as stable forex reserves,’’ Dass said.

The drop in exports and the bigger decline in imports were also seen across Asia.

A recent Reuters report said Asia’s forex reserves, excluding that of China, amounted to US$2.6 trillion in July. China’s forex reserves alone had exceeded US$2 trillion in June and are still growing.

The massive forex reserves have allowed Asian central banks to adopt a flexible currency policy and, given the fact that most economies in the region are export-oriented, a weak currency would probably be a policy of choice.

According to the latest Big Mac Index, arguably the world’s most accurate financial indicator to be based on a popular burger, most Asian currencies are undervalued against the US dollar.

The ringgit is undervalued by 47% against the greenback, which was at the same level as the Thai baht.

Only Hong Kong (52%) and China (49%) were lower than Malaysia and Thailand among Asian countries.

Two weeks ago, it was reported that even the International Monetary Fund (IMF) has different opinions about the ringgit’s value.

In a statement following its regular consultation with Malaysia, the IMF said it thought Malaysia’s monetary policy and exchange rate were “broadly appropriate.” But another IMF report said the ringgit appeared to be “weaker than its equilibrium level in real effective terms.”

“However, many (IMF) directors were unconvinced by the exchange rate assessment, and underlined the uncertainty about fundamentals and transitory factors related to Malaysia’s commodity exports and the global crisis,” the IMF said.

Over the past four years, the ringgit has appreciated 8% against the US dollar, 11% against the Indonesian rupiah and 29% against the South Korean won.

It depreciated 8.2% against the Singapore dollar, 9.5% against the Japanese yen, 10% against the euro, and 12% against the baht.


For latest Bursa Malaysia indices, charts and other information click here


For Bank Negara statements click here

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