The Malay Rinnggit’s up-trend trend likely to continue

Ringgit, the Malaysian currency, traded at 3.0290 vs. the USD in early February, hitting the highest mark since October 1997.

Although it is being traded lower against the “Greenback” currently at 3.038, the currency is expected to continue gaining value, despite possible intervention from the Bank Negara Malaysia (BNM), the country’s central bank.

Economy analysts generally believe that the Malaysian economy has come out from the gloomy days, despite the existence of uncertainties in the external environment.

While the official growth estimate of the country’s Y 2010 gross domestic product (GDP) growth to be six percent, Malaysian Prime Minister Najib Razak said Thursday that the actual figure has exceeded the projection.

New and large infrastructure projects, including 36B Ringgit (US$11.88B) mass rapid transit system, the largest infrastructure development in the country’s history, have been in the development pipeline of the country.

From the economic perspective, this is no difference than pumping prime into the economy, which would spur the growth of a number of sectors in the country with significant spillover effect.

Positive investor and consumer sentiments will stimulate spending’s, providing impetus to the country’s economic recovery.

While the Malaysian government stressed that the stronger ringgit reflected the fact that the country’s economy remained strong and resilient, other development, such as inflation, may also lead to the appreciation of the currency.

Global food price hike, resulted by food shortages due to calamities, has triggered inflation across the globe, affecting countries including Malaysia, which is still dependent on food imports to meet local demand.

The Malaysian Statistics Department announced recently that the consumer price index (CPI), which is a gauge of inflation, rose by 2.2 percent in December 2010 from a year ago, recording a 19-month high.

While the Malaysian government is in the midst of reducing subsidies on essential goods, prices of daily necessities in the country may rise gradually, asserting more pressure on the country ‘s inflation.

Should this situation occur, the BNM may raise interest rates to contain inflation, further widening the interest rate spread between Malaysia and other advanced economies that are maintaining a sharply eased monetary policy.

When more foreigners save their money in Malaysia to reap benefits from the difference in interest rates, demand for the ringgit will rise, causing also its value to increase.

Analysts project that the BNM will raise the overnight policy rate by 75 basis points this year to 3.5%.

Najib, who is also Malaysian Finance Minister, and several Malaysian Cabinet ministers have repeatedly said that a stronger ringgit would not dampen the recovery of the exports industry in the country.

This also signals that there is still room for the currency to gain value, because the political pundits said at the same time that a stronger ringgit is beneficial to the country’s economic development.

Some quarters have proposed to the Malaysian government that inflation in the country can be contained by allowing the ringgit to appreciate more as imported goods, whose transactions are concluded in the US Dollar, will be made relatively cheaper.

The Malaysian GDP is expected to grow by 5% in Y 2011, slightly lower than Y 2010. But economists are optimistic that the ringgit will be traded at 2.80 against the USD by the end of Y 2011.—Paul A. Ebeling, Jnr. www.livetradingnews.com

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Posted by Shayne Heffernan on Feb 18th, 2011and filed underAsia, Latest News, Markets.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site