THE ringgit, which hit a three-month low last week, will stabilise after September when a global stock market index completes its review of Malaysian bonds, said an economist.

The currency’s value will improve if Malaysian government bonds continue to be included in the FTSE World government bond index following negotiations with Bank Negara Malaysia (BNM), said Lee Heng Guie of the Socio-Economic Research Centre (SERC).

As of now, SERC, a research unit under the Associated Chinese Chambers of Commerce and Industry, estimates that the ringgit value’s at year-end will be between RM4 and 4.15 to the US dollar.

The currency’s plunge to RM4.133, said Lee, is primarily caused by news that London-based FTSE Russell, a world stock market index provider, is reviewing Malaysia’s market accessibility level in its World Government Bond Index (WGBI).

However, the economy’s strong fundamentals – a current account surplus, foreign reserves that are above US$100 billion – will serve to prop up the ringgit, said Lee.

“Concerns of a potential downgrade in the index and the risk of Malaysia being excluded from the index had caused those investing in Malaysian bonds to sell their holdings. These concerns spilled over to the stock market and you see the ringgit weakening,” Lee said.

“But the fundamentals (to support the ringgit) are still there,” he said, adding that this included a current account surplus, foreign reserves above US$100 billion and economic growth of between 4.3% and 4.8%. Inflation is also not a big problem.

“So with all this, there is support for the ringgit and I am looking at a range of RM4 to RM4.15 by the end of the year.”

BNM officials are currently in talks with FTSE Russell on the inclusion of government bonds ahead of index’s review in September.

Ministers, such as Darell Leiking and Lim Guan Eng, have also weighed in on the local currency, saying the fluctuation was temporary and that it does not reflect its true value.

Leiking said the plunge in the ringgit’s value was not a concern yet as other countries have seen similar fluctuations with their currencies.

“I think BNM (Bank Negara Malaysia) has strategies to overcome this,” Leiking said.

Lim also expressed confidence in the ringgit, saying that its true value could only be measured by looking at its performance throughout the year.

Experts have also said the decline is likely due to negative news headlines and worries over the US-China trade war, which can impact on Malaysia’s export-reliant economy. – April 24, 2019.