RM4 to the dollar seen | Biz Info

RM4 to the dollar seen


The ringgit has fallen to the lowest level in the last six years and closed at 3.73 to the US dollar yesterday.

Ringgit expected to weaken on expectation of US rate hike

KUALA LUMPUR: The ringgit is expected to weaken to the 4.00-level versus the US dollar in the next six months as investors anticipate a hike in the benchmark US federal funds rate.

The hike may come earlier than anticipated after recent indicators show growth has visibly strengthened in the world’s largest economy.

Johns Hopkins University’s Eni Professor of international economics Michael Plummer said the greenback would continue to be exceptionally strong in the next few months on market anticipation of a rate hike by the US Federal Reserve.

He told StarBizWeek on the sidelines of the 19th Asean Finance Ministers and Central Bank Governors Meetings that should the ringgit weaken towards the 4.00-level, there could be space for Bank Negara to intervene to stabilise the currency.

“We are now at RM3.70 against the US dollar even before the US has increased the interest rates. The country has only spoken about increasing its rates, and when it does there is a possibility that the ringgit would tumble to 4.00 against the dollar,” Plummer said.

His ringgit outlook echoes a recent report by Macquarie Research’s Asean economist PK Basu, who said the currency could fall to 3.95 to the US dollar by September before strengthening to 3.82 by year-end.

Basu expects Bank Negara to cut the benchmark overnight policy rate (OPR) either in May or July and keep it at that level through 2016.

The cental bank raised the OPR last July by 25 basis points to 3.25%.

The ringgit has fallen to the lowest level in the last six years and closed at 3.73 to the US dollar yesterday as concerns mount over the Malaysian economy’s exposure to commodities following the drop in crude oil, palm oil and rubber prices.

“In the short-run, the country should be prepared for the further weakening of the ringgit and yet take advantage of that,” Plummer said, adding that the weaker ringgit would make exports competitive and boost the economy.

He said exports would benefit across the board instead of just selected industries.

On another note, former Indonesian finance minister Dr M Chatib Basri said Asean had no need for a single currency given the problems facing the 19-member euro-zone.

“We do not need to have an Asean single currency to have integration like the European Union,” he said.

Chatib added that Asean integration was vital for the region’s businesses to expand beyond their markets but was no antidote against trade protectionism.