Ringgit continues its climb
Filed Under (Other News) by Webmaster on 08-04-2010
Tagged Under : Ringgit Malaysia, RM
The ringgit continued to strengthen yesterday as rising optimism the economy will grow faster than predicted whetted foreign investors’ appetite for local assets, including stocks and bonds.
The World Bank yesterday raised its forecast for economic growth in East Asia to 8.7% for 2010, up from its previous prediction of 7.8% growth last November.
It also expects the Malaysian economy to grow at a faster rate of 5.7% this year, compared with its earlier forecast of 4.1% made in November.
The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) eked out a 0.72-point gain yesterday to close at 1,345.09 points. The stock market yardstick had risen uninterrupted since March 23.
“Foreign money is flowing into the equity and bond markets spurred by strong growth prospects and favourable government policy moves,’’ said Zulkiflee Nidzam, the head of foreign exchange and bond trading at Asian Finance Bank Bhd (AFB).
A local bank-backed brokerage yesterday predicted foreign investors might increase their holdings of ringgit-denominated government securities to RM70bil by year-end, up from its previous forecast of RM65bil made in January.
Meanwhile, a Bloomberg report yesterday quoted Prime Minister Datuk Seri Najib Tun Razak as saying in Singapore that the Malaysian economy may exceed Bank Negara’s growth estimates this year with the right “policy intervention.”
The country’s gross domestic product (GDP) this year, he said, could expand by 1% to 2% more than Bank Negara’s forecast in March of at least 4.5%.
The ringgit yesterday was traded to a 23-month high of 3.192 against the US dollar, before it settled at 3.211.
Year-to-date, the local currency had advanced 6.7% against the greenback to make it the best performer among active currencies in Asia.
Bank Negara was among the first central banks in Asia Pacific to raise key interest rates on March 4, after Vietnam and Australia, as policymakers expect economic growth to strengthen further.
“Based on the extremely hawkish March 4 statement released by the monetary policy committee, there is a strong likelihood that the overnight policy rate (OPR) will be raised again at the May 13 meeting,’’ MIDF Research said in a strategy report dated April 5.
It expects the OPR will rise to between 2.75% and 3% by the end of the year, from 2.25% currently.
The recent rate increase and the prospect for further hikes are supportive of the ringgit’s further rise.
“Conventional wisdom is that rising interest rates are bad for equity, but rates are rising in Malaysia in the context of a growing economy,” MIDF said,
A similar thing happened in 2006, when local stocks advanced 22% while average lending rates rose 45 basis points and GDP growth accelerated to 5.9%.
