April 23 2007

THE ringgit, which hit a 10-year high recently, is expected to strengthen steadily through the year to around RM3.30 to the US dollar next year.

CIMB Investment Bank, like many other research houses, has revised its outlook from RM3.45 to RM3.40 for 2007 and from RM3.35 to RM3.30 in 2008.

Bullish sentiments on the currency, it said, were buoyed by Bank Negara Malaysia’s upbeat assessment of the economy, the scrapping of real property gains tax (RPGT), and easier foreign exchange rules.

Investors also welcomed the Prime Minister’s endorsement of a strong ringgit and speculation that the currency could be traded offshore.

Chief economist Lee Heng Guie said although the central bank has raised its tolerance level for the ringgit, it will manage the currency so that it follows a gradual upward trend.

“It will act to smoothen excessive exchange rate volatility at any cost, if the exchange rate movements are pushed to unsustainable levels by the inflow of speculative short-term funds.”

The Malaysian Institute of Economic Research said recently that a gradual rise gives time for businesses to adjust to a stronger currency.

The ringgit has gained by as much as 2.8 per cent to 3.4340 to the US dollar on April 17 from 3.5315 as at end 2006.

Kenanga Investment Bank economist Wan Suhaimi Saidi felt that the ringgit may be allowed to strengthen further, essentially to lower the import bill and to limit the external inflationary pressure.

Wan Suhaimi believes that BNM has been intervening in the forex market over the past few weeks in an effort to restrain the ringgit from climbing up faster than it should.

“As a result, the level of volatility has subsided from an average of 1.2 per cent since July 21 2005 to just 0.5 per cent in the past two weeks since end March this year as the ringgit hovers around 3.44-3.45 to the dollar,” he said.

The ringgit appreciated by 9.4 per cent against the greenback from January 2006 to early April 2007 and gained 10.7 per cent against the yen but weakened 2.8 per cent and 4.4 per cent vis-à-vis the euro and the pound.

It is still trailing regional currencies as the latter strengthened even more against the US dollar which depreciated in the second quarter.