According to a Bloomberg report, analysts are predicting that the Ringgit is likely to go above the RM3.80 mark by the end of 2015.
Macquarie Bank Ltd was said to be reviewing its previous end-of-year forecast of RM3.75 in the light of waning demand for emerging-market currencies, while Barclay Singapore’s Asia Pacific Foreign Exchange Strategy predicts that the Ringgit will end the year at RM3.95.
According to Westpac Banking Corp., the likelihood of the Ringgit breaching RM3.80 is not a matter of if, but a question of when.
According to Bank Negara’s Governor Zeti Akhtar Abdul Aziz, fundamentals will prevail once the uncertainty affecting market sentiment subsides.
Despite her assurance, analysts say that potential for recovery may be hampered by several factors:
- Recent implementation of the Goods and Services Tax (GST) which has resulted in inflation rising to 1.8%.
- Brent crude prices have dropped 43% from its peak in 2014.
- Overseas shipments fell again in April.
- Drop in exports may cause a reduction in the current account surplus which stood at RM10 billion ringgit (US$2.7 billion) for the first quarter.
Analysts further predict that higher US interest rates will result in capital outflows, given that 32% of the nation’s sovereign bonds are held by foreign investors. A 8% drop in Bank Negara’s foreign exchange reserves since December will limit its capacity to defend the ringgit.
Former Prime Minister Dr Mahathir Mohamed voiced out recently that re-pegging the Ringgit would be one way to stabilise the exchange rate. Malaysia previously imposed capital controls in 1998, when the Ringgit plunged to a record RM4.885 per US Dollar following the collapse of the Thai Baht. The crisis forced Mahathir’s administration to peg the Ringgit at RM3.80 to the US Dollar.
Analysts also believes that Bank Negara’s ability to fight the stronger dollar trend is being diminished. This puts Malaysia at the risk of a credit rating downgrade by Fitch Ratings in June. Currently rated -A, a review is expected by the end of June, with 1Malaysia Development Berhad’s (1MDB) massive debts likely to be a major factor.