KUALA LUMPUR, March 24 – The ringgit is expected to strengthen further against the US dollar to between RM3.40 and RM3.60 this year on expectations the US Federal Reserve will not increase interest rates this year, says an economist. The ringgit will touch that comfort level between September and November this year, said Shan Saeed, chief economist of IQI Group, a property and investment company operating and advising in Malaysia, Singapore, Hong Kong, the UK, the US and Dubai.
“Looking at the way things are shaping up in the US, the job market is still very soft and the confidence level in the US economy is still very weak. “I don’t think Federal Reserve Chair Janet Yellen would increase the interest rates this year, but might in the second quarter of 2016. “Yellen will continue to test the water, sending signals to gauge what the market actually thinks about the interest rate hike,” he said in an interview here. The Fed has kept its federal funds rate target at a record low of zero to 0.25% since December 2008.
Saeed said US gross domestic product (GDP) from 2015 to 2017 would expand by between 2.4% and 2.8%. He further explained that the stronger dollar would not help the US economy to get out of the woods but actually hurt US exports and corporate earnings as foreign markets contribute 40% of the profits, and a third of the sales, of Fortune 500 companies.
“Once Yellen comes out and says ‘Okay I’m not increasing the interest rates’, the funds would pull out of the US and come back to emerging markets, which would eventually lead to the ringgit’s appreciation.” Saeed said most people have tended to correlate oil prices with the US dollar to ringgit exchange rate, but pointed out that oil contributes just 20% to the country’s exports with the manufacturing and services sectors making up the rest.
