Analyst: Ringgit weakness due to US dollar strength

The persistent weakness of the Ringgit has been attributed to the strengthening greenback and expectations that the Federal Reserve would be inclined to raise interest rates in the second half of the year.

According to Pong Teng Siew, Head of Research at Inter-Pacific Securities, recent data coming out from the US showed that the US economy, the biggest in the world, was turning the corner.

“The situation in the Eurozone was not helping either as the European Central Bank prepares to undertake its quantitative easing program which is putting pressure on the Euro. This has a telling effect to the strength of the Ringgit as the Ringgit is pegged to a basket of currencies and the Euro is one of them,” said Pong to Astro AWANI.

The Ringgit slid to a 6 year low yesterday at 3.6628 to the US dollar but recovered in today’s early morning trade. At 11.30 a.m today, the Ringgit was trading at 3.647 to the green back.

The Ringgit is Asia’s worst-performing exchange rate in the past six months, with a loss of 13 percent.

Bank Negara Malaysia, which has kept its overnight policy rate at 3.25 percent since raising it in July, meets today and all 19 economists surveyed by Bloomberg predict no change.

“I expect Bank Negara Malaysia to keep interest rates unchanged although the inflation rate remained subdued at 1% in January.

The rationale for this is the Government is implementing the Goods and Services Tax (GST) on April 1st and the Cenral Bank would want to study the effects on inflation before making any policy decisions on interest rates,” added Pong.

As oil prices slumped, the government raised its 2015 fiscal-deficit target to 3.2 % of gross domestic product (GDP) from 3 percent and reduced its growth forecast.

Projected GDP for 2015 is 4.5 % to 5.5%.