Thursday 28 Mar 2024
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KUALA LUMPUR (Nov 8): RHB Research chief economist Lim Chee Sing said the ringgit's weakening has been partly driven by the perceived political instability in Malaysia as well as weakening economic fundamentals.

"The ringgit is actually undervalued because there is quite a significant risk premium built into it. A lot has to do with the perceived risk of political instability following the 1MDB (1Malaysia Development Bhd) issues.

"Obviously, the weakening of the ringgit over time is not just political, as the strengthening US dollar and the weakening economic fundamentals of the country are also factors," he said at a press conference at Deloitte Malaysia's TaxMax 42nd Series Seminar today.

Besides that, the fall in commodity prices, especially crude oil, has also given rise to worries of the government missing its fiscal deficit target.

Meanwhile, the Chinese government's move to weaken the renminbi last year — in a bid to encourage exports amid slowing economic growth — has also raised concerns on the impact it may have on currencies of commodity-dependent and developing economies.

However, Lim said the political risk premium accorded to the ringgit should narrow over time as the political landscape becomes clearer.

"The fear of political instability, I think, is overblown. The headwinds should dissipate and the risk premium would gradually narrow and that should allow the ringgit to strengthen to the RM3.80 level against the US dollar perhaps towards end-2017," he said.

 

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