Yumi Teso and Ron Harui, Bloomberg
Tokyo: Malaysia’s ringgit will climb to the highest in more than a decade in a year as the government may lift a ban on trading the currency outside the country, said Citigroup Inc.
The US bank raised its ringgit 12-month forecast to 3.36 per dollar from a previous forecast of 3.45, after Bank Negara Malaysia on 21 March eased curbs on foreigners investing in the country. The central bank still stops domestic banks from trading the currency overseas, a ban aimed at cutting supply of ringgit to speculators as Asian currencies tumbled in 1997-98.
“We expect the ringgit to be tradable offshore by the end of this year,” said Chua Hak Bin, director of economic and market analysis for Asia-Pacific in Singapore at Citigroup, the world’s third-largest currency trader. “This can help dispel the image among investors globally that Malaysia has a capital-controlled economy.”
The ringgit advanced 2.1% against the dollar this year to the highest since February 1998, the second-best performer among 15 most actively traded Asia-Pacific currencies after the offshore Thai baht. Prime Minister Abdullah Ahmad Badawi said he welcomed the gain because it shows confidence in the economy.
The currency rose 0.1% to 3.4570 per dollar as of 9:51 am in Kuala Lumpur after touching a nine-year high of 3.4515, according to data compiled by Bloomberg. Last year, it climbed 7.1%.
The ringgit’s appreciation reflects the nation’s economic strength, central bank governor Zeti Akhtar Aziz said 21 March. A further appreciation “therefore would be gradual, reflecting the underlying fundamentals,” she said.
Zeti said on the same day that the bank will assess if the country has preconditions in place to benefit from allowing the currency tradable overseas. “This will be reviewed from time to time” along with other liberalizations, she said
Malaysia introduced the ringgit peg and a set of measures, including a ban on overseas trading of its currency in September 1998 after currencies across Asia collapsed. Mahathir Mohamad, who was prime minister at that time, attacked hedge funds for their role in taking positions that profited from the declines, describing investor billionaire investor George Soros as a “moron.”
Mahathir’s successor Abdullah ended the seven-year peg on 21 July 2005, in favour of a managed float against a basket of undisclosed currencies of its key trading partners.
The central bank 21 March removed a cap on domestic banks undertaking foreign-exchange transactions and allowed foreign investors more access to credit to buy local-currency bonds and properties, effective April. Malaysia will also abolish in April a 32-year-old levy on profit made on the sale of properties held for less than five years, Abdullah told investors at a conference in Kuala Lumpur on 22 March.
The Malaysian authorities “are very much in favour of ringgit strengthening,” said Suresh Kumar Ramanathan, head of market economics and strategy at Affin Investment Bank Bhd in Kuala Lumpur. “Eventually, this will lead to the next stage of full convertibility of the ringgit.”
The $147 billion economy expanded 5.9% in 2006, beating a 1 September government forecast of 5.8% and accelerating from 5.2% in 2005. The central bank on 21 March forecast growth to accelerate to a three-year high in 2007 at 6%.
“Given the current economic strength, that will put appreciation pressure on the currency,” said Tetsuo Yoshikoshi, a market analyst at the treasury unit of Sumitomo Mitsui Banking Corp. in Singapore. “The central bank may want to accept this and they seem to be confident in their economic strength and export sector.”
Malaysia may allow offshore trade at the latest before the end of the year, Yoshikoshi said. The ringgit may appreciate to 3.4 by then.
— With reporting by David Yong in Kuala Lumpur