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Ringgit may end 2015 above RM3.80
KUALA LUMPUR: Having closed at RM3.7595 to the US Dollar last Friday, analysts are predicting that the beleaguered Ringgit is likely to go above the RM3.80 mark, reports Bloomberg.
Among them, Macquarie Bank Ltd was said to be reviewing its previous end-of-year forecast of RM3.75 to the Dollar in the light of waning demand for emerging-market currencies, while Mitul Kotecha, Barclay Singapore’s head of Asia Pacific foreign-exchange strategy, predicts that the ringgit will end the year at 3.95.
“Fundamentals will prevail once the uncertainty affecting market sentiment subsides,” Bank Negara Governor Zeti Akhtar Abdul Aziz was reported to have told Bloomberg last Monday.
Despite that assurance analysts say that any potential for recovery may be hampered by several factors, including the recent implementation of the Goods and Services tax which has resulted in inflation rising to 1.8%.
In addition, Brent crude prices have dropped 43 percent from its peak in 2014 and overseas shipments fell again in April.
A protracted drop in exports may cause a reduction in the current account surplus which stood at RM10 billion ringgit ($2.7 billion) for the first quarter of this year.
Analysts further predict that higher US interest rates will result in capital outflows, given that some 32 percent of the nation’s sovereign bonds are held by foreign investors.
Also, an eight percent drop in Bank Negara’s foreign exchange reserves since December will limit its capacity to defend the ringgit, according to Macquarie and Westpac Banking Corp.
Last Thursday, former Prime Minister Dr Mahathir Mohamed claimed that re-pegging the Ringgit would be one way to stabilize the exchange rate.
Malaysia previously imposed capital controls in 1998, when the Ringgit plunged to a record RM 4.885 per US Dollar in the wake of the collapse of the Thai Baht.
The crisis forced Mahathir’s administration to the peg the Ringgit at RM3.80 to the US Dollar.
The likelihood of the currency breaching RM3.80 is “not a matter of if, but a question of when,” Westpac’s currency strategist Jonathan Cavenagh was quoted as saying.
“Bank Negara’s ability to fight the stronger dollar trend is being diminished,” he claimed.
Malaysia is also at risk of a credit rating downgrade by Fitch Ratings this month.
Currently rated A-, a review is expected by the end of June, with 1Malaysia Development Berhad’s (1MDB) massive debts likely to be a major factor which will be taken into account. – FMT
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