Govt policy changes help to strengthen ringgit

According to Universiti Sains Islam Malaysia senior lecturer of the faculty of economics and Muamalat Dr Muhammad Iqmal Hisham Kamaruddin, the increase in the Overnight Policy Rate (OPR) by Bank Negara Malaysia (BNM) was a swift action, but it was still not able to control the country's inflation problem.

"I expect BNM to increase the OPR rate again in September and October this year.

"This increase will not happen in the near future and should the OPR rise, it will not rise sharply, probably by 0.25 and this expectation is through reading the previous data," he told Bernama.

He explained that the increase was to control inflation and at the same time would strengthen the exchange rate of the national currency.

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, foreign analysts remained optimistic about the prospects for the ringgit's recovery which would return to strength in the near future.

This follows their overall median outlook for the ringgit against the US dollar in the second quarter of 2022, third quarter of 2022, fourth quarter of 2022 and first quarter of 2023 with 4.37, 4.35, 4.28 and 4.27 respectively.

In addition, the overall average, foreign analysts' projections for the ringgit against the US dollar in the second quarter of 2022, third quarter of 2022, fourth quarter of 2022 and first quarter of 2023 were 4.35, 4.37, 4.29 and 4.25 respectively.

Iqmal said the increase in crude oil prices also contributed to the strengthening of the ringgit as the country was still heavily dependent on crude oil imports and exports.

"If we look at the price of crude oil today at US$115.88 per barrel and, if we measure for 2022 from January to June 1, the price increase is 55.3 per cent from the current price.

"So this increase to some extent gives support to the value of the ringgit, if this trend continues and the oil price is more than US$100 per barrel, of course, the value of the ringgit will strengthen during this period," he said.

He said commodity prices, especially palm oil, which increased to about RM6,300 per tonne and had reached a high in March of RM8,000, also led to high demand for the ringgit.

"Besides that, the development of FDI (Foreign Direct Investment) through a statement from the Department of Statistics Malaysia is projected to increase or grow slightly by RM23.3 billion in March to RM812.1 billion.

"And this development has encouraged foreign investors to invest in the country and help to strengthen the domestic economy," he said.

Meanwhile, Sunway University Economics Professor Yeah Kim Leng said the reopening of several major cities in China after the recent COVID-19 movement restrictions also had an impact on the strengthening of the ringgit in the near term.

"The reopening of Chinese cities that have been under lockdown would signal that China's growth will likely improve in the future quarters, which will assist to underpin Malaysia's exports to China and, in turn, add to the ringgit's strength," he said.

Yeah also said the improving fundamentals underpinning the ringgit include the rising exports and Malaysia's low inflation of 3 per cent relative to the United Stated where inflation has hit above 8 per cent currently.