Ringgit could recover in 2H09

KUALA LUMPUR: The ringgit, which is expected to trade weaker going into 2009, will likely stage a recovery during the second half of the year, analysts said.
ECM Libra Investment Bank Bhd economist Dr Lai Mun Chow said the currency should reverse its decline against the US dollar in the second half, but until then it was expected to trade between 3.50 and 3.60 against the greenback.
“Based on our forecast, the credit crunch in the United States would come to an end by the middle of next year and the largest economy in the world would gradually recover by then,” he said.
“As foreign funds return to Asia, we would see the substantially undervalued ringgit resuming its upward trend from 3Q09,” Lai said. His end-2009 forecast for the ringgit is 3.25 to 3.27 against the US dollar.

While most analysts expect more rate cuts in the first quarter of 2009 and a weaker ringgit as a result, Lai believed the movement of the overnight policy rate was only material to the local unit if the global foreign exchange market returned to stability.

“If the United States really slips into a very deep recession and the China economy undergoes a hard landing, the Malaysian economy will definitely not be spared the adverse effects,” Lai said.
“In order to support the ringgit, it is crucial that the central bank maintains the growth momentum of the economy and ensure that it would not slip into recession.”

The ringgit closed 0.11% lower against the US dollar at 3.6235 on Friday. Year to date, the currency has fallen 8.53%.