UOB Malaysia expects ringgit to rebound in H2 of 2016

KUALA LUMPUR: United Overseas Bank (Malaysia) Bhd (UOB Malaysia) expects the ringgit to rebound in the second half of 2016, supported by the country’s diversified export base and the sustained current account surplus.

The government’s ability to manage fiscal risks from weaker oil prices would also be important in underpinning the rebound, it said on Monday.

“The rebound would provide the much-needed relief to Malaysian companies and consumers who heavily rely on imported goods,” it said.

UOB Malaysia economist Julia Goh said the market has responded relatively well to Malaysia’s new fiscal measures introduced as part of the country’s revised 2016 budget, which was announced in January 2016. 

The Malaysian government’s move to improve the country’s fiscal position and a weaker dollar are contributing to the ringgit’s strength. 

“The ringgit, up by 6% against the US dollar since its weakest point in the third quarter of 2015, strengthened against most major and regional currencies to become one of the strongest performing Asian currencies in the first six weeks of 2016. 

“The ringgit’s rally has been aided by funds repatriated from abroad and Bank Negara Malaysia’s efforts to boost domestic liquidity by reducing the statutory reserve requirement (SRR) ratio to 3.5%,” she said.

At midday, the ringgit was firmer against the US dollar at 4.2078 from last Friday’s closing of 4.2080 while it was at 6.0105 to the pound sterling from 6.0281.

Goh pointed out in the coming months, UOB Malaysia expects the ringgit to continue to be supported by the country’s diversified export base, sustained current account surplus and the government’s ability to manage fiscal risks from weaker oil prices.

She also said efforts by the Chinese authorities to ensure a stable renminbi and the US Federal Reserve’s more gradual interest rate hike cycle will continue to support the local currency’s firm footing in 2016. 

“The conditional agreement to hold oil production steady by the world’s largest producers should also help to support the ringgit further. 

“However, growth headwinds, external geopolitical risks and the thin onshore ringgit market could result in short periods of volatility, she said.

US light crude oil rose 58 cents to US$30.22 and Brent added 47 cents to US$33.48 after Nigeria backed Saudi Arabia and Russia in freezing oil production while giving Iran and Iraq a way out to regain some of their lost market share due to sanctions and war, wire reports said.