A friend mentioned the other day that the Malaysian government must be ‘pushing up’ the ringgit because the election is near. Sometimes, I do wonder if the Malaysian government is really that capable. After all, there are so many things that the government falls short. Just read the Facebook comments to know more. Anyway, coming back to the ringgit’s rise. The reasons stated by most analysts thus far would be the depreciation of the USD which has caused the ringgit to rise against it. Well, I do not think the Malaysian government is more powerful than the biggest economy in the world. Definitely not yesterday, today, not tomorrow and not in 2020, yet. Anyway, let’s read from an expert instead of debating on whether it’s the ringgit.Anthony Dass is chief economist/head of AmBank Group Research. Full article in TheStar here.
In brief, global growth outlook is still positive. The United States is confident with the state of its economy and is likely to raise rate three times in 2018, each by 25 basis points from the current rate of 1.5% to reach 2.25% in 2018 and normalise around 2.75%-3.00% in 2019. (Comments: Yes, when the economy is strengthening, the central bank usually will increase the rate so that money is not used for SPECULATIVE purposes like pushing up stock prices or house prices to new highs and instead used only for actual capital investments into businesses for example)
Ringgit has appreciated by 8.6 percent against the dollar in 2017 BUT, it has actually depreciated by 4.5 percent in 2016. Main reason is because of improving macro fundamentals and a lower risk aversion. The full year average of ringgit to USD was RM4.30! Yet, it ended 2017 with RM4.046.
Ringgit should stay healthy, in tandem with the regional currencies which is supported by a more positive global outlook, continued export momentum growth in the region and policy normalisation in some countries. This region’s fundamentals are in a much better shape compared with the 2013 taper tantrum period. (Comments: Note ‘MUCH BETTER SHAPE’)
Ringgit versus USD in 2018? It will be driven by favourable macro data such as firm economic growth supported by domestic activities i.e. private expenditure, broad base supply growth and exports; improving fiscal consolidation on the back of healthy macro fundamentals and prudent policies which should lower further the fiscal deficit/GDP to around 2.8% in 2018 from its peak of 6.7% in 2009; and healthy external reserves that surpassed the US$100bil mark on Aug 15, 2017 to US$100.4bil and as at end-2017, external reserves stood at US$102.4bil. (Comments: Note all those macro data stated. As soon as those change for the negative, then of course ringgit’s rise will stop and perhaps depreciation may start. It should not be based on just sentiment alone. Reminder that we (Malaysia) continue to have trade surplus while the largest economy is still having trade deficits. It does not really make sense for continuous depreciation for a country exporting more versus one that seems to be importing much more compared to its trading partners. Without more demand for its currency, then why should it be appreciating?)
There is still a potential for ringgit to appreciate another 4-5 percent. Domestic fundamentals are also favourable too. The ringgit is thus expected to perform well. Lower base would be 3.88–3.90 while the best case will be 3.76–3.78 against the dollar. Full article in TheStar here. Happy following and believing, regardless of your views.
written on 4 Feb 2018
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