RAM: Ringgit won't hit 4.00 against US$

KUALA LUMPUR: RAM Rating Services Bhd economist and head of research Kristina Fong is of the view that the ringgit to continue experiencing volatility in the next few months in anticipation of the first US rate hike, but the currency is not expected to hit the 4.0 mark against the US dollar.
Speaking to reporters after a talk titled "Economic Outlook and The Impact of Exchange Rate Volatility" organised by the Malaysia External Trade Development Corp (Matrade), she said RAM is projecting the ringgit to be in the range of 3.8 to 3.9 in the next few months.
"We don't expect the ringgit to touch 4.0, 3.9 will be the lowest," she opined, adding that the full-year average forecast for the ringgit is 3.7 to 3.8.
The ringgit was trading at 3.8535 against the US dollar as at 5pm yesterday.
Fong noted that majority of the ringgit movement has been affected by market sentiment that is non-fundamental based, such as oil price shock.
"The situation is managed, downward pressure (for the ringgit) would not prolong indefinitely…Some uncertainties are unfolding at the moment, that should help (to mitigate) the downward pressure the ringgit is facing right now," she noted.
MIDF Research concurred, saying that the current trend for the ringgit will continue until the Fed decides to increase its interest rate, which is most likely to be on September 17.
"We would expect the current trend to continue. We expect the ringgit to be in the range of RM3.80 to RM3.90 by year end," it noted.
Fong said it's unlikely for Bank Negara to re-peg the ringgit against the US dollar as the situation has changed as compared with that of the 1997 Asian financial crisis and such a move will send a "bad message" to foreign investors.
"We do not believe pegging is the plan because Malaysia is a more open economy now, it doesn't seem in the monetary plan," she noted.
According to an exporters' survey by RAM, close to half of the respondents indicated that the weakening ringgit has not directly impacted export demand, suggesting that the weakening currency has not worked to drive growth in exports. Exporters however generally benefit from a stronger dollar as their businesses are mostly denominated in US dollar.
Fong declined to comment on the impact of ongoing investigations into 1Malaysia Development Bhd (1MDB) and the recent Cabinet reshuffle, on the ringgit.
Commenting on the commodity front, she believes commodity prices will remain soft this year and going into 2016.
"We don't see the high last year for quite a while…but we still expect quite a robust growth next year, we don't see it's a big risk," she said.
Fong also pointed out that current account surplus remains the country's "big fundamental strength", albeit narrower due to falling commodity prices.
"Hopefully things will recover towards next year, we still expect a surplus in current account," she added.
Matrade CEO Datuk Dzulkifli Mahmud, meanwhile, expects Malaysia's exports to the Asean region to increase to 30% by 2020 from the current 24%.
When asked of the warning by Paris-based BNP Paribas about Malaysia being at a risk of "multi-notch downgrade", Fong said each organisation has its own methodology, and stressed that the country's fiscal consolidation has been progressing well.
"We see it as a positive (sign), its just a matter of different organisation looking at same situation in different ways," she reiterated.
BNP Paribas' remarks came after Fitch Ratings maintained the country's credit rating at "A-" and upgraded the outlook to "stable".
RAM estimates a moderate 5% gross domestic product (GDP) for 2015 compared with 6% last year. The growth will be largely driven by resilient domestic demand, as export performance is expected to remain sluggish in the second half of the year.