KUALA LUMPUR, Jan 12 – The weaker ringgit presents a “positive shock” to Malaysia’s economy as it will boost the nation’s competitiveness, said Standard Chartered (StanChart) Research. Its Regional Head of Research, South-east Asia, Edward Lee Wee Kok the weaker ringgit also provided some competitive edge although it was a result of the tumbling global oil prices and not due to Bank Negara Malaysia’s intervention.
He said it nevertheless still gave a pseudo-loosening effect in terms of the monetary policy. “We forecast most of the ringgit’s weakness would be done in second quarter of this year and it could weaken to around 3.65 and to 3.70 against the US dollar.
“Once the Federal Reserve’s rate hike starts, people will realise that Asian currencies could gain a bit more versus the dollar and expected the ringgit to trade around 3.55 towards year-end,” he told reporters on the sidelines of the Global Research Briefing 2015, titled ‘Rekindling Animal Sprits’, here today.
On another note, StanChart expected BNM to increase the overnight policy rate again by 25 basis point in November this year. Lee said the interest rate hike was not about protecting the ringgit. “It’s not about protecting the ringgit now, but rather dampening the market volatility, as too much of it would make it difficult for hedging,” he added.
To do that, Bank Negara could use the foreign exchange reserves and now is the right time to use it, Lee said. He said the intervention using the reserves could be implied following the drop in BNM’s foreign reserves recently. Meanwhile, on the twin deficit concerns, Lee said he believed that Malaysia would still register a surplus but not a double-digit growth.
He said in a worst-case scenario, there could be an account deficit by one percentage point of gross domestic product, if the oil prices, liquid petroleum gas and crude palm oil fell by 50 per cent in whole of 2015 from last year’s price. However, Lee said it did not fall to that extent even during the global financial crisis.
On top of that, he said Malaysia had robust investment drive with a high 10 to 11 per cent growth in the past three years, which would contribute to the account surplus. The government’s target of reducing budget deficit to three per cent by the end of the year was achievable, he added.