Economists are positive on the prospects of a strengthening ringgit in line with the maturing economy and stronger growth prospects going forward.
“In the longer term, a healthy country which is growing and expanding its economy will generally see appreciation of its currency as this positively reflects improved productivity and efficiency,” RAM Holdings Bhd group chief economist Dr Yeah Kim Leng told StarBiz.
Yeah said that a stronger ringgit would be a push factor for producers who were still at the lower-end of the value chain to eventually move up and add value to their products so that they could maintain or expand their margins..
“Commodity producers will be pressured due to their export-driven nature, however, they can choose to add value and sell these products at higher margins to cushion the impact of the stronger ringgit,” Yeah pointed out.
Other benefits of a stronger currency included lower imported inflation, cheaper price of raw materials and lower cost of education for students studying overseas.
Yeah said the ringgit could strengthen to RM2.90 to a US dollar by the end of the year but said that in the short term, global factors such as the softening global economy and the uncertainties in Europe could undermine the appreciating trend of the local currency.
Meanwhile, Alliance Research’s Chief economist Manokaran Mottain said that the strengthening ringgit was due to continued foreign inflows into the country’s debt capital markets as Malaysia was being viewed as Asean’s new “safe haven” amidst resilient domestic demand growth.
“Foreign investors are still attracted to the country’s currency as it is still resilient and shielded from the global economic turmoil.
“They are also attracted to the country net positive interest rate differentials compared with other currencies such as the US dollar and the euro,” Manokaran said.
“The continued appreciation of the ringgit means that foreign investors do not expect to see a review in the interest rate policy in September.
“These investors can earn some extra money from the positive differentials of interest rates for the time being,” Manokaran said,
He added that the stronger local currency was also in line with selected regional peers.
The ringgit closed at near three-month high against the greenback at RM3.10 compared with RM3.20 in June.