TIME FOR RINGGIT TO PLAY CATCH UP, SAYS MAYBANK FX
KUALA LUMPUR: The strengthening yuan and Singapore dollar should allow the undervalued ringgit to play catch up, said Maybank FX Research.
Stability was gradually returning to the ringgit as political/contingent liability risks subsided, fiscal consolidation gained traction, oil prices continued to stabilise and uncertainty subsided, it added.
According to the research house, the ringgit was undervalued by 11 per cent.
“Our fair value model, which takes into account the relative differentials in interest rates, inflation, current account and a reflation proxy variable (defined as the change in the ratio of MSCI World index to JPM Global Aggregate Bond Index) estimates the US dollar-ringgit pair at the 3.80 levels,” it said in a report yesterday.
Maybank FX said the ringgit REER (real effective exchange rate) was about 10 per cent undervalued relative to its 10-year average.
The US dollar-ringgit pair was lower due to numerous factors, including the slight improvement in global risk appetite overnight and continued improvement in investor sentiment for Malaysian risk assets (since Bank Negara Malaysia’s initiatives to broaden and deepen onshore financial markets back in mid-April).
It also noted the improving
macro-fundamentals (second quarter gross domestic product
at 5.8 per cent) and strong run in exports with the recent export growth for July surging 30.9 per cent, and firmer oil prices amid the soft US dollar environment.
“Our economists noted that despite the more subdued capital flow trend, external reserves continued to grow, pointing to the positive contribution from trade flows via the repatriation of exports earnings amid a robust export growth.”
Between December last year and June, US$3.6 billion (RM15.05 billion) net export earnings have been repatriated, much larger than the US$2.5 billion increase in external reserves during the same period, indicating the supportive role played by trade flows via the repatriation of export earnings channel.