Ringgit expected to remain volatile

KUALA LUMPUR - The ringgit is expected to remain volatile driven by uncertainty of the external sector especially the US economic outlook and the potential tapering of quantitative easing (QE) programme by the US Federal Reserve.

HSBC Bank Ltd head of Asian currency research Paul Mackel (pic) said the external factors were the bigger drivers for the ringgit volatility compared with domestic factors, of which was the country's thinning current account surplus.

"Now that the general election is over and Budget 2014 tabled, going forward the main driver would be the external environment, focusing on the US Federal Reserve's tapering of QE," he told reporters at the HSBC Economic and Foreign Exchange Outlook 2014 yesterday.

The ringgit began sliding in late May as foreign funds pulled from emerging markets on hints that the Federal Reserve may taper off its US$85bil bond-buying programme. The ringgit hit a three-year low of RM3.33 (S$1.30) against the US dollar on Aug 28.

Mackel opined that there was 50 per cent chance the Federal Reserve might taper its QE programme next month.

He expects the ringgit to depreciate to RM3.30 against the US dollar by end-2014.

"It would be a bumpy ride for the ringgit against the US dollar into next year and that other Asian currencies are going to remain fairly volatile," he said.

He expected that the ringgit to close at RM3.18 against the greenback by year-end and that the ringgit would remain relatively more volatile than other currencies in the Asian region, but not as much as the rupiah and rupee.

The ringgit closed lower against the US dollar yesterday to RM3.211 from RM3.209 on Tuesday.

"The US dollar is slowly moving onto more solid ground and, as it does, it is going to be pulling higher against a lot of currencies not just the Asian currencies," Mackel said.

He said the rupiah and rupee would continue to "struggle" more than other Asian currencies mainly due to their weaker balance of payment position. He, however, highlighted that the ringgit would not be an outperformer within Asia for sometime, partly due to Malaysia's thinning current account surplus.

Nonetheless, he reiterated that the foreign investors were still heavily investing in Malaysia. "We see the commitment there as not much money has outflowed from the market especially in the bond market."

HSBC Bank chief economist for India and ASEAN Leif Eskesen, who was also present during the presentation, expects Malaysia's economy to pick up next year supported by improvement in external demand.

"With the US economy expected to recover with about 2.3 per cent growth next year and the eurozone moving into positive growth, as well China to show gradual recovery from the measures it introduced, these would help to spill over external demand to Malaysia," he said.

He forecast Malaysia's economy growing at 5.6 per cent next year compared with 4.6 per cent this year.

"We are probably going to see some tightening in monetary policy and some adjustments further in fuel prices that could contain the growth rate in consumption," he said, adding that Bank Negara might increase its benchmark overnight policy rate 25bp in the second quarter and another 25bp in the third quarter next year.