The ringgit, which fell to a three-year low last week, will gain as much as 5.3 percent by year end as policies meant to strengthen the current account help it weather an emerging-market selloff, the country’s top bond arranger said.
The currency will recover to 3.10 and 3.15 per dollar as the country’s $444 billion economic transformation plan supports growth, Michael Lim Kheng Boon, a treasury director at RHB Bank Bhd., said in an Aug. 30 interview. Government measures to reduce import means the broadest measure of trade won’t fall into deficit and the nation’s $137.9 billion of foreign reserves place it “in a good shape,” he said.
The ringgit has lost 8 percent since May 22, the third-worst performance among Asia’s 11 most-traded currencies tracked by Bloomberg. Global funds have sold local assets on concerns about the Southeast Asian nation’s shrinking current-account surplus and a potential reduction in U.S. stimulus. Malaysia’s currency is more vulnerable than Thailand to U.S. tapering as its public finances are weaker, BNP Paribas SA senior economist Philip McNicholas, wrote in a note today.
“We haven’t really seen people panic,” said Lim, who is also RHB’s director of group transaction banking in Kuala Lumpur. “The government is already responding to the concern about the shrinking current-account surplus.”
The ringgit declined 1.2 percent in August, its fourth monthly drop, after an Aug. 21 report showed the surplus in the broadest measure of trade shrank 70 percent to 2.6 billion ringgit ($795 million) in the second quarter, the least since at least 1999.
The currency gained 0.4 percent to 3.2725 per dollar as of 2:46 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It’s forecast to appreciate to 3.26 by year end, according to the median estimate of 27 analysts in a Bloomberg survey. Global funds are likely to hold Malaysian sovereign debt to maturity rather than sell, said Lim.
Malaysia’s current-account surplus will narrow to 4.5 percent of gross domestic product this year from 6.1 percent in 2012, according to the median estimate of economists polled by Bloomberg. That would still be higher than Thailand’s expected surplus of 0.6 percent and Indonesia’s estimated 3 percent deficit, Bloomberg surveys show.
The authorities may reschedule public building projects with high import content and cut subsidies as well as start a consumption tax to bolster its current-account position, government officials said Aug. 29. This comes after Fitch Ratings lowered its outlook on the country in July and warned it may miss its budget shortfall reduction target if it doesn’t enact reforms.
The Southeast Asian nation has run a fiscal deficit since the Asian Financial Crisis in 1998. The authorities aim to trim it to 3 percent of gross domestic product by 2015, from 4 percent this year, according to a July 31 government statement.
“I don’t see the ringgit being very volatile,” he said. “It has been quite resilient as compared to counterparts in India and Jakarta.”