Ringgit's uptrend to continue in 2008: Economists

AFTER a fine and steady uptrend this year, the ringgit is expected to appreciate further to RM3.22-RM3.25 next year backed by solid economic fundamentals, improving equity market as well as the weaker greenback, economists say.What has been positive about the ringgit’s uptrend is that it has been doing so gradually against the US dollar without any shocks to the economy since the government adopted the managed currency float regime more than two years ago.This has been a commendable performance since its de-peg after being fixed at RM3.80 between September 1998 and July 21, 2005, a clear indication that the Malaysian currency can hold its own.A myriad of positive factors led the local unit to touch its strongest level of RM3.31 per dollar on December 13.Economists say the local currency has remained strong relative to the US dollar and has moved within expectations, thanks to the guiding hands of the authorities.“We are actually projecting the ringgit to strengthen at the RM3.30 level by year-end. Based on the current performance, I think it can reach the target,” RAM Holdings chief economist Dr Yeah Kim Leng said.For next year, he projected the local currency to strengthen further as the US dollar is expected to continue its downward performance.“Next year, the ringgit will continue to be strengthened. The quantum of the appreciation will depend on the outlook of the US economy particularly further interest rate cuts by the US Federal Reserve, and we can see weaker a US dollar going forward,” he said when commenting on the local currency’s performance next year.According to analysts, the upward performance of the local unit next year will also be in line with the performance of its regional peers.They expect Asian currencies to likely continue their rallies in 2008 on expectation that foreign investors will pump in their cash into stocks, real estate and other assets in the region.Anthony Dass, research head at Inter Pacific Research Sdn Bhd, said the ringgit is expected to touch RM3.22-RM3.25 next year backed by improving economic fundamentals, improving equity market as well as the weakening of the greenback.He projected the local unit to strengthen further to hit the RM3.09-RM3.11 levels in 2009.On the overnight policy rate (OPR), Dass expects Bank Negara Malaysia (BNM) to hold it at 3.50 per cent in the first half of next year.“But in the second half, if inflation pressure remains contained I do not expect BNM to slash the rate if real returns continue to hover between 0.7 per cent and one per cent,” he said.Any cut in interest rate, he aded, will depend on the economic outlook.“If there is a need to spur private spending BNM could lower the OPR and hence lower real returns. I feel this will take place if private spending remains lacklustre or a drag from exports is somewhat pulling down the overall economic performance despite spurring private expenditure,” he said.BNM has kept the OPR at 3.50 per cent for 13 consecutive policy meetings, with BNM governor Tan Sri Dr Zeti Akhtar Aziz saying Malaysia’s interest rates are “below neutral” and still supportive of the country’s economic growth.She said the country’s inflation rate is also stable and is currently below two per cent.Inflation was forecast to average 2.0 per cent this year and 2.8 per cent next year. Average inflation was 3.6 per cent in 2006. - Bernama