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[KUALA LUMPUR] The ringgit may advance 4 per cent as the latest measures by Bank Negara Malaysia reduce the risks of holding the currency and the economy improves, a member of the central bank's financial markets committee said.
The currency could reach 4.1 to the US dollar in the second half, said Lee Kok Kwan, who is also a director at lender CIMB Group Holdings Bhd. The fair value of the ringgit should be between 3.8 and 4.0, when benchmarked against regional and commodity currencies, said Mr Lee, who accurately predicted in January that the currency will rebound from a 19-year low.
"The macro fundamentals have improved quite a lot, such as GDP and exports," Mr Lee, who is part of the committee tasked to develop strategies for the nation's bond and currency markets, said in an interview on Wednesday.
"Equally as important, the speculative offshore holdings of short-dated ringgit instruments have declined markedly, which eliminates a major source of downside risk to the currency going forward."
Mr Lee joins a chorus of voices seeking to boost sentiment on Malaysian assets as the central bank relaxes currency hedging rules, after a clampdown on the trading of non-deliverable forwards last November sent investors fleeing. He is more bullish than the consensus analyst estimate, which sees the ringgit weakening to 4.35 against the US dollar by the end of the year.
The currency last touched 4.1 in October, and was at 4.264 at 11:00am local time Thursday. Foreign holdings of debt rose for a second month in May, while the currency has advanced 5 per cent this year as confidence improves.
A 45 per cent increase in sales of ringgit corporate bonds this year, and the tightening of Malaysia's credit-default swaps to less than 100 basis points suggest that the risk profile for the currency has dropped, Mr Lee said.
Bank Negara's clampdown on NDFs had reduced up to RM50 billion (S$16.17 billion) of overseas holdings of short-dated interest-bearing assets, Mr Lee said. A requirement in December for exporters to hold only as much as 25 per cent of proceeds in foreign currencies is also helping to sustain bids for the ringgit, Mr Lee added.
To revive confidence, the central bank said in April it will let fund managers handle all of their foreign exchange exposure, up from a limit of as much as 25 per cent of invested assets. It will also let domestic investors short-sell government bonds to boost liquidity.
Mr Lee's view echoes others including Neuberger Berman Group LLC, which said in April that the ringgit may be among the region's better performers in the coming months. Strategists at Morgan Stanley wrote in a note this month that the currency is among those favoured.
What's boosting their case is Malaysia's improving economy. Gross domestic product grew 5.6 per cent in the first quarter, the fastest pace in two years, while exports expanded 20.6 per cent from a year earlier in April.