Ringgit hits six-year low

PETALING JAYA - The ringgit weakened for a third day in a row, falling to a fresh six-year low against the US dollar amid fresh worries about possible rating downgrades of the country’s debts after the Government revised its fiscal deficit forecast higher.

Fitch Ratings warned that it is “more likely than not” to downgrade Malaysia’s sovereign rating at its upcoming review in the first half of the year.

The ringgit has depreciated 10% over the past three months, as it settled at 3.6172 against the US dollar yesterday.

The Government, in its budget review on Tuesday, had revised the ringgit target to average at 3.55 against the greenback this year, which is weaker than its earlier projection of 3.24.

“The ringgit could also weaken further, depending on the direction of crude oil prices. This is because weaker oil prices will probably prompt short-term portfolio investors to pull their money out from Malaysia,” RHB Research said yesterday.

It expects the ringgit to remain weak and likely to trade at around 3.50 to 3.60 against the greenback in the near term, adding that Bank Negara was not likely to use foreign exchange reserves to support the ringgit.

“We do not expect Bank Negara to hike its key policy rate to take pressure off the currency,” it said.

But while the central bank may refrain from intervening in the market, some analysts believe that it may conduct certain market actions to help smoothen the drop.

MIDF Amanah Investment Bank chief economist Maslynnawati Ahmad believes that local institutional funds have the capacity to support the market.

“But given the still-high volatility, not many will want to enter the market now and may want to wait until there is a sign of stabilisation,” she said.

Meanwhile, the benefits of Malaysia being a net importer of oil is mainly in the long term. Prime Minister Datuk Seri Najib Tun Razak said on Tuesday that the nation’s current account “must remain in surplus” and may be about 2% to 3% of gross national income in 2015, compared with an estimated 5.1% last year.

“The Government may find ways to rely less on oil revenue. If demand in net oil-importing countries picks up, driven by the lower oil prices, exports may increase,’’ she said.

A cheaper currency will be a welcome boost for exporters, giving them a competitive advantage against overseas rivals.

“We do not rule out that the lower deficit target, coupled with the volatile crude oil, could still put pressure on the ringgit,” Kenanga Research said. “Hence, we will continue to focus on sectors such as electrical and electronic, original equipment manufacturers, as well as gloves and plastics packaging.” it added.