THE ringgit will strengthen to RM3.80 to the US dollar by the end of the year said a senior economist on the back of Malaysia’s strong economy.

Affin Hwang Capital chief economist Alan Tan Chew Leong however, said the local currency’s value will likely experience some turbulence in the short term until the fourth quarter of this year.

“But going into the fourth quarter we expect it to strengthen to RM 3.80 by the end of this year,” Tan told reporters when met after a talk at the Malaysia-China Chambers of Commerce.  

This is due to Malaysia’s good fiscal position where the government has announced that it can meet the budget deficit target of 2.8% of gross domestic product at the end of the year.

Tan’s analysis on the ringgit is also based on the country’s current account surplus which shows that Malaysia is exporting more than it is importing.

“Looking at Malaysia’s economic fundamentals, especially its fiscal position which continues to remain manageable and to continue to improve, and especially with the current account surplus remaining at a comfortable level, we think this will support the ringgit towards the end at 2018.”

The ringgit fell from RM 3.90 in January to trade at 4.06 today.

Tan said another factor which helped boost the ringgit was Bank Negara Malaysia’s ruling that exporters had to convert 75% of their proceeds from the US dollar to the ringgit.

“This measure will create more demand for the ringgit.”

Tan added that he expects the local economy to grow between 5% to 5.3% this year despite worries over the impact of a US-China trade war.

Tit-for-tat tariffs between the two superpowers are expected to impact US$50 billion (RM203 billion) in trade between the two countries and cause ripples among other countries.

Tan said if US president Donald Trump made good on his promise to start a full-scale trade war, it could spark a world economic crisis which would hit everyone including Malaysia.

“But our expectation is that Trump will not go that far, that there will be a comprise between China and the US.” – July 21, 2018.