Liew Jia Teng
KUALA LUMPUR (Oct 22, 2013): The ringgit is expected to strengthen to 3.10 against the US dollar after Friday's Budget 2014 announcement, said RHB Bank Bhd director of treasury and group transaction banking Michael Lim Kheng Boon, as expectations are high that the government will bite the bullet and unveil measures such as the goods and services tax (GST), in a bid to lower the country's fiscal deficit.
The government has committed to narrowing the country's budget deficit to 4% of gross domestic product (GDP) this year and 3% in 2015, from 4.5% in 2012.
"GST is a broad-based tax and it's for the long run. We shouldn't give anymore excuses or else the rating agency (Fitch Ratings) might downgrade our credit rating outlook further and things will only turn worse," he said during a panel discussion on "Quantitative Easing and Currency Wars – What's Next for Asean?" at the FX13: The Bloomberg Summit here yesterday.
"Let's pray hard that we will have a good national budget. I see the ringgit hitting 3.10 to the US dollar after the budget comes out," said Lim.
The ringgit closed lower to 3.1680/1720 against the US dollar yesterday from last Friday's 3.1480/1510.
Prime Minister Datuk Seri Najib Abdul Razak is largely expected to announce an initial 4% GST rate this week, which economists have said would bring in RM20.5 billion in tax revenue and considered revenue-neutral.
In contrast, however, HSBC Bank Malaysia Bhd associate director of Asian FX Dominic Bunning expects the ringgit to weaken against the greenback in the next six to 12 months, even as the local currency may see some short term upside following the budget announcement.
He does not view the budget "as necessarily a catalyst".
"Most important is to manage the expectation. People expect to see some positive things in the budget and it has skewed to the fact that it should do better," he added.
CIMB Bank Bhd head of interest rate and FX strategy Suresh Ramanathan said during the election year, the ringgit has traditionally remained strong 60 days before and after the poll, but turns weak in the remaining days of the year.
"The general election is over and we're (on) a stronger footing. Now the question is, 'What sort of budget will we have?' If it's too political in nature then we might not be able to address the fiscal policy and deficit issue," he warned.
Malayan Banking Bhd chief dealer of spot FX Selva Raj Sinnan opines that the ringgit is likely to retreat to 3.35-3.30 against the US dollar as demand for the greenback remains strong, following the nomination of Janet Yellen to replace Ben Bernanke as the head of the US Federal Reserve and an expected tapering of the US' quantitative easing (QE) programme.
"The fact is, tapering of QE will happen. Now that the market knows it's not going to happen now, but it will happen later nevertheless, so it will react orderly instead of in a disruptive manner," he said.
"I would buy on dips if the ringgit breaks at the 3.14-3.12 levels, as by year end it will go up to 3.35-3.30 (against the US dollar)," he continued.
Selva added that Malaysia, as a developing and export-oriented country, has to find a balance between having a stable currency to attract foreign investment but not too strong until it hurts export demand.
"Technically, the taper off has begun. Market has priced in this factor and is expecting Yellen's dovish stance," said Suresh, forecasting that the ringgit will ease to 3.30 to the US dollar.
On the possibility of the renminbi replacing the US dollar as a reserve currency, Lim foresees that happening in the next eight to 10 years.
HSBC Bank's Bunning, however, does not concur with Lim, saying that there was a slim chance that there would be a switch.
"The US political situation continues to be disappointing, but I think there's a slim chance to see people switching from the US dollar to other currencies such as renminbi, so the greenback will hold up well in medium term.
"Even if the data doesn't turn better, the US needs to taper the QE next year anyway. Having a privilege as a reserve currency, people are still willing to hold US dollar," Bunning added.