Ringgit expected to see temporary weakness

PETALING JAYA: Economists expect the ringgit to see temporary weakness in the wake of Pakatan Harapan’s (PH) victory in Wednesday’s general election, but the condition is expected to be short-lived.
However, the ringgit is not expected to weaken beyond RM4.02 to the US dollar.
PH – led by Tun Dr Mahathir Mohamad – swept 122 out of the 222 contested parliament seats, which saw the Barisan Nasional losing its majority after six decades in power. Mahathir was sworn in as Malaysia’s 7th prime minister tonight, his second time in office. He was the country’s 4th prime minister from 1981 to 2003.
Sunway University Business School Professor of Economics Dr Yeah Kim Leng said during the transition of power, the ringgit might be subjected to negative sentiments due to policy uncertainties. But this is expected to abate once PH is able to lay out its policies in more detail and offer clarity upon forming the government.
He said while the volatility of the ringgit is unlikely to be a concern, as supportive global economic conditions and once policy certainties are in place, the currency is likely to see a boost.
“If we get our policies right, the ringgit can strengthen to way back before Tun M pegged the ringgit. That will be the desired outcome. It will also be a desire to see it at the level when they first pegged it. Now is after 20 years and of course when it weakens there other factors, such as oil prices,” he said.
Mahathir imposed capital controls and pegged the ringgit at 3.80 to the US dollar during the Asian Financial Crisis of 1997-98.
Projecting the ringgit to hover between RM3.80 and RM4.00 in the short term, Yeah said external factors such as the strength of the greenback will also be at play.
Malaysian Institute of Economic Research senior research fellow Dr Shankaran Nambiar said the slip of the ringgit against the greenback is expected to be short-lived given the uncertainties such as the delay in the swearing-in of a new prime minister and security concerns, among others.
He said it is “only fair” for the markets to “react by putting the ringgit down” on the back of these uncertainties. This, he added, is temporary and unlikely to continue.
“I don’t expect that to continue as Mahathir gets into his seat and moves into performance gear. I expect he’ll be able to convince markets that he can correct the inadequacies that have affected the economy.
“I see a rise in the value of the ringgit from RM4.02 to RM 3.80 against the dollar. As Mahathir works to improve fundamentals and perceptions improve, I think sentiments will change and the ringgit will get stronger,” Shankaran said.