Report: Ringgit will strengthen if ‘no surprises in GE14’

Senior economist with UOB Kay Hian says stronger economic conditions and greater certainty on medium-term political and economic outlook will help boost currency.

PETALING JAYA: An economist sees the ringgit strengthening after the next general election (GE14) with the likelihood of stronger economic conditions and provided there are “no unexpected surprises in GE14”, The Edge reported.

Julia Goh, who is senior economist with UOB Kay Hian Global Economics & Markets Research, said that such an increase in the value of the ringgit was “in the cards”.

“Assuming no unexpected surprises in the coming election, this provides greater certainty on the medium-term political and economic outlook.

“As such, we expect investment flows to pick up post-elections and support further ringgit strength,” Goh said in a macro note released today.

She added that the ringgit should also become stronger, contrary to how the currency had performed after the past two general elections in 2008 and 2013.

“In the past two general elections, the ringgit weakened a year after polls but that mainly due to external factors, (including) the global financial crisis, oil price slump, among other things,” she was quoted as saying by the financial daily.

Goh added that the optimism also stems from the ringgit’s gains against the US dollar in the new year.

“Our constructive view is that the ringgit has kicked off 2018 on a good start, breaking the RM4 mark for the first time since August 2016.

“This is considered undervalued, and economic conditions are also stronger than in 2008 and 2013,” she said.

However, Goh said that the performance of the ringgit was also dependent on the US Federal Reserve’s pace of rate hikes.

According to her statement, a more aggressive pace of US Fed rate hikes could push the US dollar higher and result in a renewed weakness in crude oil and that could impact the ringgit.

“However, any weakness in the ringgit is expected to be more gradual.

“This is due to current foreign ownership of Malaysia’s bonds and stocks being relatively low, BNM’s strong foreign reserves that would support the ringgit, as well as stabilised onshore foreign exchange conditions,” she said. -FMT