Credit Suisse raises ringgit forecasts

Currency said to be undervalued, boosted by strong exports

PETALING JAYA: Credit Suisse has boosted its forecast for the ringgit, saying the currency could extend gains in view of the recovery in Malaysia’s exports, improving growth and its undervaluation.

It raised its three-month target to 4.0 per dollar from 4.10, and 12-month target to 3.80 from 4.0, according to a report by Bloomberg.

Credit Suisse noted that Bank Negara was encouraging the rally and was poised to raise rates by 25 basis points in the first quarter.

Despite the ringgit’s recent gains, its real effective exchange rate had only increased 3% from a record low in December 2016, analysts Ray Farris and Trang Thuy Le said.

They added that the currency was still 7% undervalued, given that the global benchmark Brent was trading at around US$63 per barrel.

“The cheap ringgit has aided a recovery in Malaysia’s exports and enabled shipments to outperform most Asian peers,” they noted in the report.

Credit Suisse expects the country’s current account surplus to widen to US$11.5bil (RM47bil) next year from US$9.9bil this year, or 3% of GDP com- pared to 2.4% in 2016.

It further noted that the positioning in ringgit assets seemed modest and should improve, and foreign equity investors were still significantly underweight.

The analysts added that the Malaysian government and Bank Negara may tolerate ringgit strength heading into the upcoming general election as the currency is seen as a gauge of confidence.

The risks to its forecasts, it said, included the passage of US tax reforms and any outflows if the government eases curbs on domestic funds’ overseas investments following the ringgit’s stability.