Keeping the ringgit below US$3.80

GIVEN Malaysia's strong Q1 GDP growth at 5.6 per cent and inflation being kept at a healthy level of 2.5 per cent, we were expecting the ringgit to remain strong. Even in the midst of the strengthening US dollar, we had expected the ringgit to maintain its strength with strong fundamentals.

However, with an unexpected loss of investor confidence resulting from the unfolding 1MDB situation, the ringgit weakened further. This caused the currency to weaken past the historical six-year high of 3.80, relative to the US dollar. This level is highly significant as it was the level that the ringgit was pegged to the US dollar during the Asian Financial Crisis and suggests possible intervention from Bank Negara Malaysia (BNM) at this point.

There are many possible measures that the BNM can implement to maintain the ringgit's strength. One of the more common approaches to maintaining the currency strength could be to adjust the interest rate upwards.