RINGGIT SHELTERED BY HIGHER OIL PRICES
KUALA LUMPUR: The ringgit was sheltered from the worst of last month’s emerging market selloff, thanks to higher oil prices.
It may be about to make up for lost time.
Traders will be hovering over the sell button after Wednesday’s policy meeting in case the central bank shows any sign of turning dovish due to the worsening United States-China trade dispute and the government’s decision to cut back on infrastructure spending to trim its debt burden.
The rally in oil prices is also in danger of peaking after Organisation of the Petroleum Exporting Countries and its partners agreed last month to boost output, and US President Donald Trump lashed out at the group for not doing enough to reduce petrol costs.
While central banks in Indonesia, the Philippines and India have all raised rates in recent months to bolster their currencies, Malaysia may end up doing the opposite.
Analysts predict economic growth will slow to 5.5 per cent this year from 5.9 per cent, while inflation will cool to 2.5 per cent from 3.9 per cent, giving new governor Datuk Nor Shamsiah Mohd Yunus plenty of reason to ease policy.
Although analysts predict that Bank Negara Malaysia will keep its benchmark interest rate unchanged at 3.25 percent this week, they have been trimming their predictions for a future increase.
The market implied policy rate for one year’s time has declined to 3.28 per cent from 3.41 per cent in May, data compiled by Bloomberg show.
Morgan Stanley predicts the ringgit will weaken to 4.28 per US dollar by year-end due to expectations for a stronger dollar, concern about Malaysia’s debt burden and political uncertainties.
Barclays Plc says it will drop to 4.20 amid a possible deterioration in the nation’s finances after the scrapping of the Goods and Services Tax.
The currency was traded at 4.0373 versus the US dollar on Friday.
Prime Minister Tun Dr Mahathir Mohamad has made clear his preference for the ringgit’s direction, saying its fair value should be 3.8 per US dollar.
While it may eventually appreciate to that level, the short-term risks are for it to go the other way.