Ringgit forecast to hit Rm3.60 to the dollar by end-2005

Author: John Richardson

2005/07/22

SINGAPORE (CNI)—The Malaysian Ringgit will appreciate to Rm3.60 to the US dollar by end-2005 and RM3.50 by end-2006, Malaysia's CIMB Securities said in a report released on Friday.

The Ringgit was pegged to the dollar at Rm3.80, in 1998 and remained at that level until Thursday's decision to allow the currency to operate in a managed float against a basket of trade-weighted currencies.*

Lee Heng Guie, chief economist at CIMB, added in the report that the modest appreciation would be because the Ringgit was only marginally undervalued against the US dollar.

“Our in-house estimates indicate a 5.8% under valuation, which is fairly consistent with Bank Negara’s estimate of 5% and the International Monetary Fund’s 3.5%.”

He added that the removal of the peg would have a net positive effect on the economy, as lower costs of production and working capital would more than offset the fall in the external trade surplus.

However, Lee said that the manufacturing sector would suffer through a loss of export competitiveness. Malaysia is a major exporter of polyethylene (PE) bags to the west, and of electronic goods.

*Malaysia's decision immediately followed China's decision to adjust the exchange of the Renminbi to the dollar to Rmb8.11, up 2.1% from a peg of Rmb8.28.

The Renminbi has also been shifted to a managed float against a basket of currencies, the names of which have not been announced. It can rise or fall in value against the dollar by 0.3% per day and 1.5% per day against other currencies.