‘Ringgit may edge up 4pc on improved sentiment’

Strong economic fundamentals will drive growth, says BNM

THE ringgit may advance four per cent as the latest measures by Bank Negara Malaysia reduce the risks of holding the currency and the economy improves, said a member of the central bank’s financial markets committee.

The currency could reach 4.1 to the dollar in the second half, said Lee Kok Kwan, who is also a director at CIMB Group Holdings Bhd.

The fair value of the ringgit should be between 3.8 and 4.0 when benchmarked against regional and commodity currencies, said Lee, who accurately predicted in January that the currency would rebound from a 19-year low.

“The macro fundamentals have improved quite a lot, such as gross domestic product (GDP) and exports,” said Lee, who is part of a committee tasked to develop strategies for the nation’s bond and currency markets.

“Equally as important, the speculative offshore holdings of short-dated ringgit instruments have declined markedly, which eliminates a major source of downside risk to the currency going forward.”

Lee joins a chorus of voices seeking to boost sentiment on Malaysian assets as the central bank relaxes currency hedging rules, after a clampdown on the trading of non-deliverable forwards (NDF) last November sent investors fleeing.

He is more bullish than the consensus analyst estimate, which sees the ringgit weakening to 4.35 against the dollar by the end of the year.

The currency last touched 4.1 in October, and was at 4.264 at 11.00am yesterday. Foreign holdings of debt rose for a second month last month, while the currency advanced five per cent this year as confidence improves.

Bank Negara’s clampdown on NDFs had reduced up to RM50 billion ringgit of overseas holdings of short-dated interestbearing assets, said Lee.

A requirement in December for exporters to hold only as much as 25 per cent of proceeds in foreign currencies is also helping to sustain bids for the ringgit, Lee added.

To revive confidence, the central bank said in April it would let fund managers handle all of their foreign exchange exposure, up from a limit of as much as 25 per cent of invested assets.

Lee’s view echoes others including Neuberger Berman Group LLC, which said in April that the ringgit may be among the region’s better performers in the coming months.

Strategists at Morgan Stanley wrote in a note this month that the currency was among those favoured.

What’s boosting their case is Malaysia’s improving economy. GDP grew 5.6 per cent in the first quarter, the fastest pace in two years, while exports expanded 20.6 per cent from a year earlier in April.

Lee also made the following point in the interview:

Full liberalisation of currency hedging in Malaysia negates the need for fund managers and corporates to go offshore to cover ringgit exposure There is more than RM1 trillion in investments abroad, which were mostly unhedged, and the outsized foreign-exchange gains could disappear as the currency strengthens. Bloomberg