Better-than-expected economic data from China lifts regional currencies
PETALING JAYA: The ringgit rose to its strongest level in 13 years against the US dollar yesterday in tandem with other strengthening regional currencies, as the latest economic reports showed China’s industrial output and retail sales in August accelerated more than expected.
Economists said the positive numbers from China had definitely boosted the outlook for regional economies and would encourage further fund inflows into the region. The ringgit rose to an intra-day high of 3.0971 against the greenback before settling at 3.101 yesterday, marking a year-to-date gain of 9.43%. It closed at 3.1105 on Thursday. The market was closed on Friday for Hari Raya Aidilfitri holidays.
Positive sentiment on the region’s economic growth aside, the advancement of the ringgit was also seen to have been due to the declaration made by Prime Minister Datuk Seri Najib Tun Razak over the week that the Government was open to reviewing the 12-year ban on offshore trading of the ringgit.
“The ringgit’s rise has been essentially underpinned by sound economic fundamentals both at home and within the Asian region, but there could be further upside potential for the currency if the Government lifted the ringgit offshore trading ban,” said TA Research economist Patricia Oh. “This is because the move could potentially send signals to investors that the Government is confident, not only in the fact that the country has sound economic fundamentals, but also in its ability to manage possible volatility of the economic cycle in the future.”
However, not everyone was excited about the possibility of such a move. Former prime minister Tun Dr Mahathir Mohamad was one such man who believed the move could bring more harm than good, as rogue currency traders would then have room to manipulate the currency.
And that could potentially wreck havoc on the value of the country’s currency.
Dr Mahathir pegged the ringgit to the dollar at RM3.80 when Malaysia was going through the Asian financial crisis in 1997 to help alleviate the effects of currency manipulation by rogue speculators. Offshore trading of the ringgit was also banned subsequently on Oct 1, 1998.
(The ringgit was traded at around 2.50 to the US dollar before the onset of the Asian financial crisis.)
As the Government progressively relaxed its capital control policies, the pegging of the ringgit to the US dollar was depegged and a managed float system for the ringgit exchange rate was implemented in July 2005.
The intention to make the ringgit tradable offshore in the future was nothing new, as it had previously been made known that such move was part of the Government’s measures to further liberalise the country’s economy.
“It’s merely a question of when,” said Citigroup Inc senior economist Kit Wei Zheng, who believed the recent rally of the ringgit was largely due to the catch-up factor, as the currency had lagged behind other regional units for the most part of last year.
Discounting any significant change in the country’s policy over the short term, many economists believed any further rise of the ringgit could be capped.
The ringgit is seen stabilising at around between 3.10 and 3.15 against the US dollar by the end of the year.
“The business cycle for the exports market is turning less bullish, and the narrowing of the country’s current account surplus over the last few months,” Kit said. “We believe there could be slight intervention by the central bank to maintain the ringgit’s competitiveness as exports come under pressure in the later part of the year.”
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