Ringgit to strenghten to RM2.98 against US dollar by year end

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KUALA LUMPUR: The ringgit is expected to strengthen to RM2.98 against the US dollar by year-end, on the back of regional growth trends and further hikes in interest rates.

Tai Hui, the South East Asia regional head of research of Standard Chartered Bank said, the appreciation of the ringgit will be relatively less compared with other Asian currencies such as the Taiwan dollar and Korean won, but is broadly in line with the Asian growth.

“We saw quite a strong appreciation of the ringgit last year, and in our fore-cast, we have actually taken into account the rebound of the US dollar as well.

“In the first couple of days in January, we have seen the rotation of international investment funds away from emerging markets, back to more developed markets like the US and Europe,” he said at the Standard Chartered Bank Global Research Briefing yesterday.

He added this is a typical rebalancing by international investors after a strong performance by Asian financial markets last year, giving support to the recovery of the US dollar in the first half of the year.

“For the second half, we expect to see renewed interest in risk appetite for higher risk investments in emerging markets.

That is why, we expect the resumption of weakness in the US dollar for the second half of 2011,” Tai said.

Commenting on Malaysia’s Overnight Policy Rate (OPR), he sees interest rates climbing 25 basis points to 3.0 per cent, late in the first quarter and consecutively two more hikes in the second quarter of 2011.

“At the moment, we expect the rate to remain unchanged for the second half of 2011, which means, we will see the OPR ending at 3.5 per cent for the year.

“However, if inflation does rise above our expectations, we cannot rule out the possibility of interest rates moving beyond that level,” he explained.

Touching on Malaysia’s Gross Domestic Product (GDP) growth, Tai said, it is expected to grow by 5.1 per cent this year.

However, the bank is currently reviewing its Asian forecast.

“The previous figure was premised on the two per cent GDP growth of the US, which we have revised to 2.9 per cent.

“Although our present forecast on Malaysia’s GDP is much lower than other research houses, it is important to note that, it is very much in line with the growth trends of the country’s economy,” he highlighted.

Tai added, there would be some deceleration in growth for Malaysia after experiencing a recovery year in 2010.

At the briefing today, attended by about 200 individuals from the banking and financial services sector, a live survey was done on a few questions, notably when the much talked about general election (GE) would take place.

A majority or 44.3 per cent said it would happen in the second half of 2011, while 31 per cent pointed to the first.

“I think the GE and politics would be of secondary importance, as markets are still driven by the global risk appetite environment.

“The saturation in Europe and doubts over the sustainability of the US recovery, would be the more important determinants for fund managers,” Tai said.

He noted that although local and international market participants would be watching out for the GE, it would not be a huge downside trigger for risk appetite in Malaysia.– BERNAMA HAN AS  STANCHART-RINGGIT-p1 CLIMBING INTEREST: Commenting on Malaysia’s OPR, Tai Hui sees interest rates climbing 25 basis points to 3.0 per cent, late in the first quarter and consecutively two more hikes in the second quarter of 2011.