The ringgit, which has fallen versus the US dollar in
recent months, may strengthen in the coming months as risk appetite returns
following more positive US economic data.
While economists expect the
recovery to be gradual, flattish US Treasury yields in recent days could be a
signal that appetite for safe-haven assets might dampen despite lingering
concerns over the eurozone debt crisis.
Economists and currency
strategists have pointed out in recent reports that the relatively higher
interest rates and more positive growth outlook would continue to play a part
in supporting the performance of Asian currencies.
Hor Kwok Wai, Hong Leong Bank
Bhd's chief operating officer for global markets, said in an email reply to StarBiz
that Asian currencies including the ringgit would outperform the major
currencies this year due to comparatively higher interest rates going into 2012
as well as better growth prospects.
“We project the ringgit to
strengthen to 2.90 (versus the US dollar) in the first half of 2012. However,
going into the second half of 2012, there is some possibility of stability out
of Europe and better growth in the United States to tilt the currency play back
in favour of the euro and the greenback,” he said.
Hor added that Asian currencies
were in a consolidation phase in 2011 after multi-year gains due to a slowdown
in the global economy and the eurozone debt issues.
He pointed out that the ringgit
had performed quite well against the US dollar this year, down only 3.5 per
cent while the Indian rupee had been one of the worst performers among Asian
currencies, falling 19 per cent.
Foreign currency strategists at
Royal Bank of Scotland Group plc (RBS) said in a report published in
mid-December that Asian currrencies except for the yuan, rupee and rupiah were
undervalued as stronger fundamentals, including large current account
surpluses, show.
They believe that risk-aversion
and foreign currency intervention by policymakers were among reasons for the
undervalued currencies in the region even as the share of global exports rose
in recent years.
RBS analyst Sanjay Mathur
remains bullish on the ringgit, pointing out that the current weakness in the
ringgit was mainly a reflection of position adjustment as well as limited
intervention by Bank Negara.
He sees the revised growth
forecast to between 4 per cent and 5 per cent from 6 per cent as “an employment
generating level and can be achieved owing to the strength of the domestic
economy” with higher palm oil prices, targeted fiscal support to lower income
groups and ongoing improvement in incomes lending certainty to the growth
target.
“This growth profile also
suggests that the need to respond via rate cuts is absent,” Mathur said,
concurring with the comments of other analysts who believe that the central
bank might not cut rates this year.
Meanwhile, economists at Morgan
Stanley Research expect Asia ex-Japan policymakers to start initiating targeted
fiscal policy measures and selective monetary easing to help contain some of
the downside risks to growth.
However, monetary policy
measures would be less aggressive compared with the 2008/09 period as concerns
over banking sector asset quality problems and trailing inflation in some
countries leave limited room for manoeuvre.
Excluding India, Indonesia and
China, they believe that should the growth outlook deteriorate, fiscal policy
could play a bigger role in protecting growth with other Asian countries making
interest rate cuts of between 25 and 100 basis points, at most.
For Malaysia, Morgan Stanley
analysts Tan Deyi and Chew Seen Meng expect a cumulative 50-basis-point cut
which would take the overnight policy rate to 2.5 per cent by this quarter.
Fintan Ng
The Star
Business & Investment Opportunities
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