Volume 3, issue #14 - 08-05-1998

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Experts see steady ringgit in coming months

Mar. 26, 1998 The Malaysian ringgit is expected to hold around current levels in the next 3 months amid improving investor confidence in the currency, according to a group of exchange dealers. They expect an average of 3.60 ringgit per dollar by the end of June. Forecasts ranged from 3.20 to 4.40.
The Malaysian currency has lost around 30 % of its value since the financial crisis erupted last July. But it has rebounded sharply from a historical low of 4.88 to the dollar in early January.
"We're seeing stability in the ringgit. It may be stuck in a range of 3.50 to 3.80 in the next couple of months," said a regional economist. Economists and dealers said the ringgit would be supported by Malaysia's package of measures to strengthen its economy and financial sector.
Bank Negara Malaysia, the central bank, recently announced tighter regulations for the troubled banking system, including frequent reporting of financial data and higher capital requirements.
"I was impressed by the announcement. The authorities were moving in the right direction and certainly showed a change of attitude towards the market," said a senior regional economist. The IMF welcomed the package, saying it would contribute to stability in the region.
IMF Managing Director Michel Camdessus said overnight the moves would allow growth to remain positive in 1998 and keep inflationary pressures under strict control.
Bank Negara governor Ahmad Mohamed Don's comment that the central bank was willing to raise interest rates to defend the ringgit could also help the currency.
Ahmad also said banks' statutory reserve requirement (SRR) would be kept at 10 %, dampening expectations of a further cut as mentioned by Prime Minister Mahathir Mohamad earlier.
Bank Negara in February cut the SRR, or funds required to be placed interest-free with the central bank, to 10 % from 13.5 %, raising fears of a monetary easing.
Economists and dealers said the ringgit has a greater upside potential as it was still undervalued.
"Basically the ringgit is a bit undervalued. For the next month, we may see it trading between 3.40-3.70. If reforms are really in place and the market digests them, then it could test 3.30," a regional currencies dealer said.
Malaysian Deputy Prime Minister Anwar Ibrahim said the ringgit was grossly undervalued. He told a Taiwan delegation that a ringgit rise to 3.4 to the dollar would help local businesses and a rise to 3.2 would make local firms very satisfied.
A senior economist said the authorities may not want to see the ringgit appreciate too much "especially when growth is coming from exports. Although I would put the fair value of ringgit at 3.20 to the dollar, I don't think it will appreciate too much as we have to maintain competitiveness with others in the region," he said.