one analyst's view..
Friday, 20 March 2015 06:04
Ringgit could fall to 3.95 against U.S. dollar by Sept, economist
PETALING JAYA - Macquarie Research expects the ringgit to depreciate further to 3.95 against the dollar by September, before ending the year at RM3.82, boosting exports and trade surplus, said its Asean economist P.K. Basu.
"Malaysia is indeed a net exporter of oil (the only one in East Asia apart from Brunei), but its net exports of oil are small (the value of crude-oil exports being partly offset by imports of refined product). Sluggishness in palm oil and rubber prices, as well as plunging crude oil prices, clearly hurt sentiment toward Malaysia and had a negative impact on the earnings of listed companies in the oil services and plantation sectors," he said in his research note.
Basu said the central bank appears to be comfortable with further ringgit depreciation although the nation's terms of trade have not deteriorated."Despite a perceived deterioration in Malaysia's terms of trade (with the decline in crude oil prices and sluggishness in palm oil and rubber prices), the trade surplus has remained large. Exports (in US$) have declined 5% year-on-year in the latest three months (November 2014 till January 2015), but imports have declined an even sharper 6.6% year-on-year, widening the trade balance to a monthly surplus of US$2.83 billion during the latest three months," said Basu.
He said periods of large depreciation of the ringgit have been relatively rare over the past 20 years but when it depreciated 8% to 10% year-on-year, there has typically been a rebound in exports and the trade surplus after about six months.
The biggest depreciation was in 1998, followed by dramatic rebound in exports and trade surplus in 1999 and 2000 while in 2009, ringgit depreciation similarly resulted in an export-led rebound from October 2009 and the 8% depreciation in the year to Januar 2014 bolstered trade surplus in the first half of 2014.
"The recent episode of ringgit depreciation should similarly boost exports by Q2 2015, and allow a widening of the trade surplus in April-September 2015," he said.
During Bank Negara Malaysia's (BNM) briefing on the annual report last week, the deputy governor emphasised the "terms of trade shock" that Malaysia has experienced in the past half year, which he said justified the depreciation of the ringgit, primarily as a means to temper the decline in farm incomes from the decline in export-commodity prices.
"While we recognise the social benefits of offsetting the latter, we note that Malaysia's terms of trade have not actually deteriorated significantly. Not only are Malaysia's exports and imports dominated by non-commodity manufactures (led by electronics), but even the oil terms of trade have not deteriorated significantly," said Basu.Despite the ringgit being the worst performing currency in Asia this year and the issues surrounding 1MDB, Basu said there is still light beyond the "dark tunnel".
Real gross domestic product (GDP) is expected to decelerate this year to 4.5% growth as private consumption is reined in to 5.4% year-on-year growth, in response to the imposition of the Goods and Services Tax (GST) in April.
"Inflation is 1% year-on-year, and set to rise moderately to about 2.5% year-on-year with the imposition of the GST in Q2 2015. The latter (being a tax on consumption) will boost the savings rate, thus bolstering Malaysia's current account surplus. With inflation much lower than it previously projected, we expect BNM to cut the overnight policy rate (OPR) 25bp in Q2 2015," he said.
Basu expects BNM to cut the OPR at its May 2015 meeting or no later than the July meeting, and to keep it at that level through 2016. Consequently, an investment- and export-led rebound to 6.1% real GDP growth in 2016 can be expected. - Sundaily
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Mar 16 2015, 05:41 PM
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