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US$1 to RM4 soon, rate hike by US Federal Reserve

Over 1 month ago, a frequent commenter for kopiandproperty.com said that Bank Negara Malaysia should do something to prevent Ringgit from dropping further. I replied to his comment in Facebook that there is nothing much that Bank Negara can do because Ringgit is an internationally traded currency and Malaysia is a huge trading nation. It would not be in our best benefit to prop up the Ringgit. This is especially when sentiments are negative. Any actions to prevent Ringgit from falling further is likely to be short-lived and thus, better not try at all. Remember the days of 1998 when all the central banks in South East Asia tried to defend their currencies but all of them failed? Some borrowed from IMF and Malaysia instituted capital control to snuff out all actions on the Ringgit? It may be better to just focus on how best to make use of current situation instead, especially those who are exporting their stuffs and costs are in Ringgit.
Then, slightly over 2 weeks ago, a colleague said he may have to stop buying things online as Ringgit has dropped a lot. He buys a lot of stuffs from Aliexpress. I told him that he may have to wait very long as US Federal Reserve is likely to increase their interest rate with the healthy US economic growth. With this increase, majority of all currencies would drop versus US$ and this would include Ringgit. He asked if Ringgit may fall to a worse level than US$1 to RM3.80  I told him that I do not know but Ringgit is likely to continue falling until Federal Reserve’s decision and may continue falling if the decision is indeed as per what the market wanted. TODAY (21 March), a news article in a local English daily quoted John Hopkins University’s Eni Professor of international economics Michael Plummer as saying that it is possible that the rate of US$1 to RM4 may be reached within the next six months. US$ will be exceptionally strong and it is also supported by healthy numbers in terms of growth from the world’s largest economy.
Macquarie Research’s ASEAN economic PK Basu shares a similar view. He said US$1 to RM3.95 is possible by September before it strengthens again to US$1 to RM3.82 level by year-end. He also expects Bank Negara to cut the benchmark overnight policy rate (OPR) in May or July and keep this level till end of 2016. I think both of them are right. Haha. The reason is because I have also said the same thing to my colleague though it is impossible for me to simply give a number to my colleague. (Note: I do not have an Economics Degree) What’s the effect of such a depreciation? Would the economy be crippled? Remember when Ringgit was fixed at US$1 to RM3.80? Did the country went bankrupt? If we did not go bankrupt then, we would not be going bankrupt this time even if the exchange rate goes to US$1 to RM4. Our reserves today are many times higher than our reserves then. Yes, I remain positive and I will take actions to support what I believe. This includes continuously beefing up my stock purchase as well as one secondary property in 2015. Yes, I also hope I am right.
written on 21 Mar 2015
Next suggested article: Stock down? Stock up!

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Charles Tan The Founder The Writer Kopiandproperty
Charles Tan

Charles is Founder of kopiandproperty.com He writes from his investment experience for the the past 20 years in investments including property, stock, unit trust and more as well as readings and conversations with many property gurus in the industry. kopiandproperty.com is an independent property blog which is not affiliated to any media company, property developer or even real estate agencies.

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0 Responses

  1. Well, if bank negara cuts interest rate, the currency will drop further. but generally, a weaker currency is good for the economy/country. Just that consumers will find imported goods more expensive.

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