MIER expects ringgit to rebound by year-end

Kuala Lumpur: The Malaysian Institute of Economic Research (MIER) expects the ringgit to rebound by year-end in line with the World Economic Forum's (WEF) 2015 crude oil price forecast of between US$58-US$59. Executive director Professor Emeritus Dr Zakariah Abdul Rashid said crude oil prices as of July stood at US$48 per barrel, dampened by lack of demand and over production, and this put pressure on the local currency.

At 9 am, the ringgit was quoted at 3.8665/8695 against the greenback from 3.8510/8550 on Monday.

"The organisation (WEF) is backed by not only economists, but also experts from the oil and gas sector. Crude oil prices have indeed played an important role in determining the value of the ringgit," he said when met at the 30th National Economic Briefing here, Tuesday.

"However, do not put to much confidence in the WEF projections and rigorous monitoring on the movements of the ringgit should be made to prevent further deterioration.

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"The ringgit is heading for further decline. If the downtrend of crude oil prices was to continue, it will put more pressure on the ringgit," he said.

However, he said the ringgit was also dependent on foreign investor confidence of Malaysia's economy, including changes in the country's political landscape.

He said as investor confidence level could be dictated by the government, it must do something to restore the confidence.

Bank Negara Malaysia's intervention to help prop up the ringgit value is not the best solution for the currency, he said, adding that, "If we want to cure the disease we have to address this issue not just the symptom."

Zakariah said almost US$40 billion was spent by the central bank in two years until 2015 to raise the ringgit value, but it still failed to prevent the decline.

"As national reserve reflects a country's economic health, if the amount of reserve is waning, it symbolises worsening conditions of the country's economy.

"If our reserve continues to decline, we are afraid that it may cause rating agencies to lower our grade," he said.

Hence, he felt that it was not appropriate for Bank Negara to continue to inject the national reserve to prop up the ringgit before investor confidence towards the economy was fully restored.

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The ringgit continued to depreciate in July and early August this year, a trend that began in September 2014, as the US dollar gained strength on the back of a boom in the US economy and expected hike in its rock bottom interest rate.

In his presentation, Zakariah said the local note was clearly misaligned, especially with substantial net foreign reserves, low inflation and moderate overnight policy rate. – Bernama

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