Malaysia Ringgit Up on Central Bank News

By Win Thin

Malaysia's central bank kept rates steady at 2.75%, as expected, and the nation's currency, the ringgit, is logging gains against the dollar.

After surprising the markets back in March by being the first in Asia to begin hiking rates with a 25-basis-point move (to 2.25%), the central bank has been cautious and has hiked only two more times.

It was also reported Thursday that export growth slowed in July for the fourth straight month. Given global growth concerns, the central bank is likely to remain on hold for the rest of the year, as price pressure remain limited. (CPI rose 1.9% year over year in July.)

Given what we view as very strong fundamentals, we believe the ringgit (MYR) will continue to outperform. So far in the third quarter, MYR is up 3.5% vs. the dollar (USD). Among Asian currencies, MYR is behind only the Thai baht (THB) and Singapore dollar (SGD) in gaining against the greenback.

Indeed, USD/MYR Thursday is making new lows (since the July 2005 depeg) at 3.1225. In this uncertain environment, we continue to favor Asia and Latin America, so MYR (along with SGD) should continue to outperform in the emerging-market universe. Note that the KLCI equity market is up 25% year to date in dollar terms, behind only Thailand and Indonesia within emerging Asia.

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