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Ringgit is getting stronger, US$ to continue decline [10-05-2011]  
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The ringgit, Asia's best performing currency since last year, is expected to strengthen further on the weakness of the US and its economy.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said the Government was on the right track in raising the overnight policy rate (OPR), which would increase the likelihood of the ringgit strengthening further.

He said the ringgit would strengthen to RM2.90 to the US dollar by year-end because the growth prospects in the United States' economy were still dim.

“The dollar will continue to decline as it is still mired in its housing and financial bubble,” Yeah told a media briefing following the rating agency's AGM yesterday.

CIMB Research says the ‘massive inflow of capital inflows’ had helped to lift the ringgit to a 13-year high of RM2.96 against US$1 on April 29. — AP

He said the greenback would continue to suffer since the US debt compared to gross domestic product (GDP) was still rising despite the end of the second round of quantitative easing.

Yeah said Malaysia's GDP would expand 5.2% for the first quarter.

The greenback has weakened against nine of 10 Asian currencies in a Bloomberg basket since the beginning of last year.

“With the ringgit strengthening, our manufacturers will be forced to become more productive and innovative.

“This will help get us out of the industrialisation trap,” Yeah said.

Bank Negara raised the OPR by 25 basis points to 3% last Thursday as inflationary pressure built up in the first quarter of this year on the back of higher food and fuel prices.

The central bank also increased the statutory reserve requirement by 100 basis points to 3% effective May 16 in a move to mop up liquidity in the local banking system.

Yeah expects pricing pressure to continue building up with inflation averaging between 3% and 3.5% this year. Inflation rose to 3% in March to average 2.8% for the first quarter.

Meanwhile, CIMB Investment Bank Bhd head of economics Lee Heng Guie said in a report that the country's foreign reserves, which hit a new high of US$130bil in April, was largely due to substantial inflows of short-term capital.

He said foreign investors bought US$193.4mil of equities in April while foreign holdings of Malaysian debt securities ballooned to RM146.8bil, or 22% of total outstanding bonds in the same month.

“The fundamental factors remain supportive of private capital inflows into Malaysia - brighter growth prospects, positive news flow on economic transformation, renewed investor interest as well as higher yield gap,” Lee said.

Source:THE STAR
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