RINGGIT MAY HIT 2.93 PER DOLLAR SOON, SAYS ECONOMIST

By Massita Ahmad

PUTRAJAYA, April 26 (Bernama) -- The ringgit is expected to continue its
rally to greater heights in the near term, and towards 2.97 per US dollar in a
month, before hitting 2.93 per against the dollar in three to six months.

"The estimation was based on our recent exercise on the econometric
modelling of the local currency," an economist at AmResearch, Manokaran Mottain
told Bernama when asked on ringgit’s performance, Tuesday.

Overall however, he said any rally may be subjected to some profit-taking
activities in the long term, and this would see the unit weakening to around
2.97 per US dollar by end of this year.

Apart from an anticipated weakening of the dollar on expectations of
continued monetary easing, speculations of a potential increase in the overnight
policy rates (OPR) domestically pushed the unit to a 13-year high of 2.99
against the greenback Monday, he said.

Manokaran said Monday's performance of the ringgit was its highest for
the year, having strengthened by 0.45 per cent and with gains of nearly 2.4 per
cent against the greenback.

The economist said the stronger ringgit was also mainly due to the increased
speculation that the recent rise in inflation will pressure policy makers to
raise interest rates or tolerate further currency appreciation.

Malaysia’s inflation rate accelerated to a 23-month high of 3.0 per cent
in March compared with March last year. It was at 2.9 per cent in February.

"We think this is tolerable level for the authorities," he, however said.

He added that month-on-month prices rose only 0.1 per cent in March
versus 0.5 per cent in February and 0.6 per cent in January.

Manokaran also highlighted that "speculators think that the three equal 25
basis points (bps) hikes in interest rates by Bank Negara Malaysia (BNM)
(central bank) since March last year has grouped Malaysia among countries that
were the first to tighten monetary policy."

Malaysia’s OPR stands at 2.75 per cent currently, while the US Federal
Reserve has kept interest rates in a range of between zero and 0.25 per cent
since December 2008.

"This has led to a widening interest rate differential in favour of
Malaysia, thus making the latter even more attractive to excess dollars,"
Manokaran said.

"The interest rate spread between the two countries which currently stands
at a high of 250 bps seems another pull factor for speculative buying of the
ringgit in recent weeks," he said.

Ironically, short term capitals or "hot money", which has been driving up
the ringgit over the past few months, may not remain in the country for a longer
period of time, he added.

On BNM intervention, Manokaran said the central bank might allow gradual
appreciation of ringgit to tackle inflation.

"Like in the rest of Asia, we believe a certain degree of intervention may
have been taking place to support the currency at current levels, in order to
manage the increasing capital flows."

However, on the back of the recent rise in inflation rate, "we reckon the
central bank would allow a certain degree of appreciation in the short-term,
with the aim to reduce imported inflation."

He said a stronger ringgit would help to reduce the price pressures, thus an
OPR hike may not be necessary now.

"After all prices are accelerating locally due to cost-push and not demand
pull. Therefore, any rate would not provide the desired effect and would fail to
address the price pressures," Manokaran added.

Amid this scenario, the research house is maintaining its view that any rate
hike would only happen in the second-half of the year, and the earliest being in
July.