Written by Stan Lee, Politics Now!
KUALA LUMPUR (Politics Now!) - Amid mounting criticisms, Prime Minister Anwar Ibrahim has belatedly defended his management of the ringgit, also insisting that his government has already set in motion sufficient structural reforms to strengthen Malaysia's competitiveness.
Accused of not spending enough time on the job as Finance Minister, Anwar who holds two portfolios blamed the ringgit's freefall on "external factors" and the expectation that U.S. interest rates would have to stay high for some time due to geopolitical factors.
While Anwar did not give any forecast of what level and by when the ringgit could stabilize at, a local research firm owned by a Government-Linked Company has speculated the ringgit could end the year at 4.30 to the U.S. dollar.
“We opine the dollar to trade lower in the coming months, as we believe [that] the Fed already reached the end of its tightening cycle, following another pause in November 2023,” the MIDF said in a note released on Monday (Nov 6) that coincided with Anwar's meeting with the National Economic Action Council.
This is the second time the MIDF has made such a forecast on the Ringgit. The first was in October, just before Anwar had presented a disappointing Budget for 2024.
INVESTOR DISAPPOINTMENT LED TO CAPITAL FLIGHT
At that time, researchers had hoped a strong Budget 2024 could help reverse the ringgit's slide but unfortunately investors' disappointment at its lack of cohesiveness and concerted direction only exacerbated the capital flight.
According to MIDF in its latest note, the reason the ringgit hit its lowest recorded daily close of RM4.794 in October 2023 was due to the dollar strengthening, causing other currencies - including the ringgit - to depreciate, as the outflow of funds continued due to risk aversion.
However such a trend has been occurring for many months, said other analysts.
"It's for Malaysia to find its own oomph! for the ringgit. Same goes other emerging market nations like Thailand and Indonesia," a former head of money at an international bank told Politics Now!
So the question goes back to Anwar - what has he done to make a difference, to arrest the slide, Even if he can't buck the trend, he can try to make the ringgit the most attractive in the barrel, the best performer among the losing currencies which have no choice but to lose against the USD and not the biggest loser of them all."
EVEN IF U.S. PAUSES ITS RATE HIKES, IT MAY STILL KEEP RATES HIGH
Other analysts were also less sanguine than MIDF.
Stephen Innes, managing partner SPI Asset Management, said 4.500 was a more realistic target for the ringgit. According to him, even if the U.S. Federal Reserve bank pauses its rate hike, it may still have to keep rates high until the end of 2024.
"Services inflation (in the U.S.) continues to be sticky, suggesting a return to the Fed's two per cent target is unlikely until early 2025," Innes was reported as telling Business Times.
"The problem is that given the sticky inflation, the Fed will not likely cut rates until the end of 2024 which would be the real signal to sell the dollar."
WHAT IF INFLATION CAN'T BE TAMED & FED HIKES AGAIN?
According to the Malaysian Institute of Economic Research, the Fed might even think steeper hikes were necessary to tame inflation.
"If this is the case, we might see the ringgit continuing to weaken in the coming weeks," said senior research fellow Dr Shankaran Nambiar.
He had also said the value of the ringgit would also depend on how 2024 Budget, which has since been passed by Parliament, panned out.
"If there are sufficient reasons in the budget to buoy optimism, then perhaps the ringgit may be able, to some extent, to defy the pressures otherwise on it," said Shankaran.
At 9.05am, the ringgit depreciated to 4.6550/4.6600 versus the greenback from Monday’s closing rate of 4.6340/4.6400.
Written by Stan Lee, Politics Now!
Politics Now!
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