The ringgit may have hit 4.764 to the dollar, a level last seen during the Asian financial crisis amid 16-year high US bond yields and escalating tensions in the Middle East, but economists say it is unlikely that it will breach 5.0000.
As at 5pm yesterday, the ringgit traded at 4.764 to the dollar.
The ringgit is getting pressured on two fronts, higher US Treasury bond yields and safe haven US dollar demand as investors typically seek the dollar as a haven of last resort.
As of now, the Bank of Japan (BoJ) and the People’s Bank of China (PBoC) are trying to stabilize Asian currencies through intervention, providing some support.
“To strengthen the ringgit the only real thing is to clarify policy, endure market liquidity and maintain sound fiscal and monetary policy conditions to promote price stability and sustainable growth and investment. “These are the lessons to be learned from the past. I believe this is not a time for drastic measures. The ringgit will eventually moderate, it will not hit 5.000 (to the dollar),” Malaysia University of Science and Technology economist Dr Geoffrey Williams told the Business Times today.
SPI Asset Management managing partner Stephen Innes said it is unlikely that Bank Negara Malaysia (BNM) will aggressively deplete its reserves to defend the ringgit, as the current situation is part of a broader global trend.
“The ringgit is trading smack in the middle of the perceived acceptable trading range against the renminbi at 1.54 and change, so I think this could keep BNM from aggressive intervention as the currency is still trading steadily.”However, if the Israel-Gaza crisis remains isolated and does not spread, then the dollar could ease. I do not think the PBoC will let the renminbi weaken dramatically, hence the ringgit could remain anchored below 5.000 (to the dollar) levels,” he said.
“The central banks’ balance sheets are a lot better off than they were during the global financial crisis, and what we are seeing right now is a perfect storm for Asia FX, and there is nothing central banks can do other than to jawbone and wait for weaker US data to ease pressure on yields,” Innes added.
UCSI University Malaysia assistant professor of finance Dr Liew Chee Yoong said selling foreign exchange reserves to increase the holdings of ringgit to support the ringgit should be viewed as a short-term strategy, only to be implemented if global economic conditions further deteriorate due to ongoing geopolitical conflicts in the Middle East.
“Ringgit can hit 5.0000 ( to the dollar) if global economic conditions further deteriorate due to the conflict in the Middle East. “Thus, reflecting on the past Asian Financial Crisis, it is important to educate policymakers that strong financial oversight is important to manage currency risk. “It also underscores the significance of maintaining substantial foreign exchange reserves and adhering to principles of fiscal prudence,” he added.