RM to see marginal growth against US dollar in 2013

The ringgit is expected to see marginal appreciation against the US dollar next year buoyed by steady internal and external growth forecast, analysts said.

Alliance Research said in view of the anticipated steady growth, along with ample room in policy in the event of an unexpected global slowdown, it expected the ringgit to appreciate slightly to 2.95 against the greenback by end-2013.

"Compared with regional peers, there is potential to see stronger cross rates due to better domestic growth prospects and higher real interest rate differential vis-a-vis advanced economies," it said.

Nevertheless, it said the ringgit may come under selling pressure in the near term due to the potential exit of hot money.

"With the steady rise in the foreign holdings of equity and governments' debts post global financial crisis, any negative shocks such as political uncertainty, Euro debt crisis and US fiscal cliff may trigger risk aversion, leading to sudden outflow of funds," Alliance said in a note.

In addition, it said the overnight policy rate may remain unchanged at 3.0 per cent in 2013 given the low inflation rate, as it sees minimal risks in the recovery process and a continuing accommodative monetary policy.

Malaysian Rating Corp Bhd chief economist, Nor Zahidi Alias said going forward, the ringgit's long-term outlook generally remained positive as the economy is supported by high investments spurred by infrastructure projects.

He said the ringgit would also gained support from mega projects such as the Mass Rapid Transit, Petronas Refinery and Petrochemical Integrated Development, Menara Warisan as well as Tun Razak Exchange.

"Resilient private consumption is also providing a strong pillar to the economy," he told Bernama.

"Moreover, I do not feel that Bank Negara Malaysia is willing to soften its monetary stance unless there is a significant downturn in economic activity which is not the likely scenario at this juncture."

From the external view, he said the US Federal Reserve's intention to keep interest rates at current level until the unemployment rate falls substantially meant that the outlook for the ringgit against the greenback would likely be positive in the next couple of years.

"Notwithstanding this, the road to a stronger ringgit against the US dollar is probably bumpy in 2013 as there are developments that can temporarily take the shine off the former, such as uncertainties that foreign investors feel about the upcoming general election," he said.

He added a temporary profit-taking activity especially in the local equity market as equity risk premium increases and investors' anxiety about the declining level of current account surplus, which when viewed with persistent budget deficits would be negative for the local currency.

"On balance, barring unforeseen circumstances, we see the ringgit trading within the range of RM2.95-RM3.15 against the US dollar in 2013," Nor Zahidi said.

Throughout this year, he said the local note had generally benefitted from the low interest rate environment in the US, gaining by about 3.6 per cent against the greenback by the third week of December from its value at the beginning of the year.

"The quantitative easing policy undertaken by the US Fed to sustain its economic momentum has caused investors to sideline the greenback in favour of Asian currencies which are benefitting from stronger economic growth and Malaysia is one of them.

"The search for high returns is evidenced by the upsurge in foreign holdings of Malaysian government bonds which surpassed the 40 per cent level of total outstanding this year.

"The year-to-date positive performance of the equity market has also become a positive factor for the ringgit," he added.

In addition, Nomura International (HK) Ltd said the ringgit is expected to reach 2.92 to the US dollar next year buoyed by healthy capital inflow and strong domestic and external fundamentals.

It said the headline consumer price index inflation would average at 2.4 per cent in 2013, higher than 1.7 per cent this year due to minimum wage hike, higher cost push pressure and modest subsidy adjustment.

Hence, Nomura said it expected the central bank to keep interest rate in the first half of next year before raising it by 50 basis points to 3.5 per cent in the second half.