Thursday 28 Mar 2024
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KUALA LUMPUR: The ringgit fell to its weakest since September 2009, at 3.5452 to the US dollar yesterday before easing to 3.5338 at the time of writing, spurring renewed concerns that Malaysia would slip into twin deficits.

“In the short term, there is some concern about how trade numbers are going to come in — that we could be at risk of experiencing a deficit on current account balance and perhaps a twin deficit situation,” head of RHB Research head Alexander Chia told The Edge Financial Daily over the telephone yesterday.

However, he does not think that Malaysia will experience twin deficits — a situation in which an economy is running on both fiscal and current account deficits — and noted that the current weakness of the ringgit is “overblown”.

“There has been a lot of outflow of portfolio funds out of Malaysia, so you are bound to see the flight of capital from emerging markets — hence weakening of the ringgit vis a vis the US dollar,” he said, adding that RHB Research has an average forecast of 3.30 to the dollar this year.

At 3.5338 — still a five-year-low — the ringgit has dropped by 10.8% from 3.189 six months ago. The ringgit has also fallen by 3.58% to 2.6493 from 2.5577 during the same period vis-à-vis the Singapore dollar.

Meanwhile, Etiqa Insurance & Takaful head of research, products and alternative investments Chris Eng said there is a technical resistance level at 3.60 to 3.70 to the dollar, the levels that it hit in mid-2009.

“We are still in better shape than we were in 2009 and we’re not expected to enter into a recession even if the oil price hits US$40 per barrel,” he said. Brent crude oil price had more than halved to US$55.25 yesterday from June last year.

Eng said now is a time to “take a step back” and monitor where asset classes are moving over the next quarter, as foreign outflow is a factor in the decline of the ringgit against the US dollar.

“It also depends on the extent of the decline of crude oil and crude palm oil prices. We will have to monitor the situation. But currently, expect oil prices to recover to US$60 per barrel,” said Eng.

RHB Research’s Chia noted that the pace of recovery for the ringgit will depend on how oil prices hold up.

“If oil price falls lower than current levels, the concern on the current account will become more acute. If concerns spike, the ringgit is likely to depreciate further,” he said. 

 

This article first appeared in The Edge Financial Daily, on January 6, 2015.

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