Ringgit Malaysia – Key to Inflation Fight!

Source: www.exchange-rates.org

Ringgit Malaysia (RM) is still very much undervalued. It makes absolute sense for a strengthening RM, especially when cost-push inflation is hammering hard our standard of living.

It helps bringing down inflation rate, which now at 26 year highs, boosting ailing Bursa Malaysia, especially those badly battled plantation, property and those companies with US dollar denominated debts and costs. As at March 31, 2008, Telekom Malaysia’s US dollar borrowings totaled RM6.17 bilion, Tenaga of RM6.03billion and Telekom Malaysia International of RM2.65 billion. Consumer companies, like telcos, and retailers would also be better-off as the stronger RM leads to improving purchasing power and consumption. Likewise, for companies with a diversified geographical concentration, as demand from the non-US market continues to be strong.

In my previous comment, the commodity cycle is yet from over. Commodity market is experiencing a seasonality adjustment, and the uptrend will resume thereafter. The 17-year up-cycle remains intact.

It would not be a surprise, if our political situation improved in the later part of the year, the RM may hit a low of RM3.00/USD. Bank Negara, like other central banks in Thailand, IndiaSouth Korea, to step into market to pro-actively supporting RM from a rallying dollar and foreign capital outflow, spurred by worries over inflation. and

Fighting inflation by allowing RM strengthening is no longer a luxury. Otherwise, Malaysia may see the rising risk of a sovereign ratings downgrade by major rating agencies, of which the collateral damages can be very real. Benchmark borrowing and saving rates are lower than the rate of inflation, and stronger RM tends to have compensating effects to our fellow Malaysians.

Perhaps, this is also the right time to allow Ringgit to be internationalized. The offshore trading of the RM is part of parcel for a greater height of trade, investment and financial and capital markets development. We should not be in denial that an offshore non-deliverable forward (NDF) market on the ringgit, ringgit forward and interest rate swaps are already developing rapidly in recent months, and if we are not engaging markets in a more effective and efficient ways, Malaysia is facing a greater risk of marginalization!