09 April 2010

Why Ringgit is so strong now?

Recently, many of my friends asking me why Ringgit suddenly is rising so fast in value?

Well, this is not a bad question though for Malaysians. In contrast, for those who working overseas, and converting to Ringgit regularly, would become poorer as a result. In fact, many Malaysians working in Singapore especially, might think that RM is generally weakening against SGD over the long-term. It's TRUE if you are saying since "Dot-Com" burst. 

Could this be a turning point now?

From the graph above, it shows clearly that the trend of decreasing value of SGD against RM. Reasons being that optimism of Malayisan economy is going to grow faster than many predicted. This has whetted foreign investors' appetite for local assets, including stocks and bonds.

World Bank recently raised its forecast for Malaysian economy to grow at a faster rate of 5.7% this year, compared with its earlier forecast of 4.1% made in November. As a result, local equity and bond markets are experiencing strong flowing-in of foreign money, spurred by strong growth prospects and favourable government policy moves. Malaysia goverment securities (MGS) is one of the ringgit-denominated asset which could give foreign funds liking to deposit, given its huge liquidity.

Anyway, the main reason behind the strengthening of Ringgit started when Bank Negara Malaysia (BNM) raised overnight policy rate (OPR) from 2% to 2.25%. And, many analyst are expecting another hike on May 13 meeting. The recent rate increase and the prospects for further hikes are supportive of the ringgit's further rise.

In Asia Pacific region, Bank Negara was among the first central banks to raise key interest rates, after Vietnam and Australia, as policymakers expect economic growth to strengthen further, or to prevent another asset bubble from being inflated. Consequently, ringgit is one of the best performing currency year-to-date.

Hint: Ringgit will strengthen further against USD, and SGD somemore...

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