Ringgit Hits 10-year high against U.S. Dollar

KUALA LUMPUR, Jan 25 (Bernama) -- After two days of losses this week, the ringgit rebounded to touch a fresh 10-year high at 3.24 against the U.S. dollar as investors are optimistic about regional economic growth.The 75 basis points cut in the U.S. interest rates by the Federal Reserve also contributed to the weakening of the greenback against other currencies.RAM Holdings chief economist Dr Yeah Kim Leng said the large U.S. rate cut has made the greenback less attractive, pointing out that the cut has almost closed the interest rate gap between the U.S. and Malaysia."The ringgit will continue its upward momentum on the back of regional economic growth based on the surpluses and rising reserves of Asian economies including Malaysia," he told Bernama here.Yeah said the ringgit is likely to hit the 3.10 level against the dollar this year, adding that an appreciation of the local unit will offset imported inflation.He said Asian economies such as Malaysia have showed strong momentum and managed to control inflation, adding that currently the country's economy is benefiting from strong domestic demand, underpinned by healthy consumer spending growth.Yeah said the fall in global demand is expected to be offset by rising demand from Asian giants China and India."If the U.S. has a short and mild recession, a five percent target for Malaysia's gross domestic product growth this year is achievable as domestic demand will offset the export weakness," he noted.On whether Bank Negara Malaysia will respond to the Fed's cut, Yeah said the central bank's overnight policy rate (OPR) is unlikely to see any changes for now, pointing out that any changes in the future will depend on the indicators from the U.S."If the U.S. economy experiences a hard landing, the central bank will still have the flexibility to cut rates," he added.Bank Negara has kept its OPR at 3.5 percent since April 2006. The central bank will hold its first monetary policy meeting for the year next Tuesday.Yeah said the next few months' consumer price index (CPI) data is important to see whether Malaysia can control inflation, adding that CPI for January to December 2007 increased by two percent to 105.7 from 103.6 in the same period last year.He noted that the rising commodities prices such as oil and crude palm oil have been the main cause for pushing inflation in most countries, adding that Malaysia's inflation rate has been moderately up over the past few months on escalating global commodity prices, resulting in expensive prices in food and energy.Meanwhile, OSK Investment Bank economist Sia Ket Ee also expected the ringgit to strengthen further against the U.S. dollar as Malaysia has established a steady investment platform and is also politically steady to attract foreign direct investment.He said since last year there has been a gradual inflow of funds into the country and this has increased the central bank's reserves.Sia also expected the central bank to keep its key interest rate unchanged at 3.5 percent until the end of the year, even as inflationary risk awaits with the government's plan to cut fuel subsidies this year.