The ringgit is expected to continue its rally to greater heights in the near term, and towards 2.97 per US dollar in a month, before hitting 2.93 against the dollar in three to six months.
“The estimation is based on our recent exercise on the econometric modelling of the local currency,” AmResearch senior economist Manokaran Mottain told Bernama when asked on ringgit's performance yesterday.
Overall however, he said any rally might be subjected to some profit-taking activities in the long term, and this would see the unit weakening to around 2.97 by the end of this year.
Apart from an anticipated weakening of the dollar on expectations of continued monetary easing, speculations of a potential increase in the overnight policy rates (OPR) domestically pushed the unit to a 13-year high of 2.99 against the greenback yesterday, he said.
Manokaran said Monday's performance of the ringgit was its highest for the year, having strengthened by 0.45% and with gains of nearly 2.4% against the greenback.
The economist said the stronger ringgit was also mainly due to the increased speculation that the recent rise in inflation would pressure policy makers to raise interest rates or tolerate further currency appreciation.
Malaysia's inflation rate accelerated to a 23-month high of 3% in March compared with March last year. It was at 2.9% in February. “We think this is tolerable level for the authorities,” he, however said.
He added that month-on-month prices rose only 0.1% in March versus 0.5% in February and 0.6% in January.
Manokaran also highlighted that “speculators think that the three equal 25 basis points (bps) hikes in interest rates by Bank Negara since March last year has grouped Malaysia among countries that were the first to tighten monetary policy.”
Malaysia's OPR stands at 2.75% currently, while the US Federal Reserve has kept interest rates in a range of between zero and 0.25% since December 2008. “This has led to a widening interest rate differential in favour of Malaysia, thus making the latter even more attractive to excess dollars,” Manokaran said. “The interest rate spread between the two countries which currently stands at a high of 250 bps seems another pull factor for speculative buying of the ringgit in recent weeks,” he said.
Ironically, short-term capitals or “hot money”, which has been driving up the ringgit over the past few months, may not remain in the country for a longer period of time, he added.
On Bank Negara's intervention, Manokaran said it might allow gradual appreciation of the ringgit to tackle inflation. “Like in the rest of Asia, we believe a certain degree of intervention may have been taking place to support the currency at current levels, in order to manage the increasing capital flows.”
However, on the back of the recent rise in inflation rate, “we reckon the central bank would allow a certain degree of appreciation in the short term, with the aim to reduce imported inflation.”