KUALA LUMPUR (Sept 21): AmBank Research expects the ringgit (MYR) to average around 4.31 – 4.33 versus the US dollar (USD) for the full year of 2017.

In a note today, AmBank group chief economist Anthony Dass said after exhibiting an easing trend for four consecutive months, inflation rose in August to 3.7% year-on-year (y-o-y) while the core inflation rose at a slower pace by 2.4% y-o-y.

He said the strong inflation in August was partly due to higher petrol prices.

Dass said this explains the 3.4% y-o-y gain in non-food prices in August versus 2.7% y-o-y in July.

“Meanwhile, the MYR gained 0.14% to 4.1875 against the USD despite higher inflation data.

“We believe this could be due to: (1) evidence of demand-pull inflation kicking in reflected by the steady gain in prices related to household items; (2) expectations of the domestic GDP to perform better in 2017, with our projection at 5.7% – 5.9%; (3) external reserves sitting slightly above US$100 billion; (4) inflation averaging around 3.5% – 3.7% for the full year, suggesting the 2H inflation would be lower than the 4.1% average in 1H2017; and (5) policy rate likely to stay at 3.00% in 2017 with a 45% chance for a rate hike.

“On an immediate note, we expect the MYR to trade within a range of +/- 0.05 against the USD. We believe the momentum for MYR to reach 4.10-4.12 against the USD by end-2017 remains high.

“Our MYR projection against the USD is poised to average around 4.31 – 4.33 for the full year of 2017.

“In our assessment, the current fair value for MYR is 3.95 against the USD based on time series modelling and real effective exchange rate,” he said.