The Malaysian Ringgit

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A country which boasts one of the most stable political environments in South East Asia, Malaysia has remained as one of the principle economic shining lights of the Orient.

Malaysia has a multi-ethnic society, 26% of whom are Chinese descendants who dominate much of the corporate sector, with ethnic Malays making up 60% with the remaining 14% being made of Indians and indigenous communities.

The Malaysian economy moved from being a predominantly and agricultural exporter of products such as tin and rubber to now becoming one of the worlds leading exporter of high tech and household electronics, natural gas and palm oil.

According to the World Bank, “exports comprise over 100% of GDP” in Malaysia meaning that the economy is dependent on the condition of the world economy. In 2013 GDP grew in Malaysia by 4.5% and, despite the US Federal Reserve's plan to taper “Quantitative Easing” which is predicted to negatively impact many of the South East Asian (ASEAN) economies. Malaysia however is expected to buck this trend and is expected to benefit from the improving demand for their exports as world growth comes out of its 5 year slumber as well as their Economic Transformation Programme (ETP). The ETP has the stated aim to drive Malaysia to be a high income country by 2020 through focusing on 12 National Key Economic Areas and 6 Strategic Reform Initiatives.

What does this mean for the Malaysian Ringgit?

It is predicted that with the US tapering and expected interest rate rises in the West that this will depreciate the ASEAN currencies as capital flows into the US Dollar and other Western economies. This you would think would be great for Malaysia, an export led economy. However, we can see that over the last 12 months the Malaysian Ringgit (MYR) has strengthened almost 9.5% against the USD from RM3.04 per $1 USD to almost a 12 month high RM3.33 per $1 USD today and against the UKs Sterling by almost 14.5% from RM4.81 to RM5.5 against £1 today. This clearly reflects the changing fortunes of the World Economy and growing demand for Malaysian exports.

There is some fear that an almost a double digit strengthening of the Ringgit will impact on Malaysia’s competitiveness. However we believe that the current strength of the Ringgit against USD/EURO/GBP will be offset by the US tapering and interest rate rises and we will not see double digit fluctuations in the currency.

We therefore predict that in 2014 USD rates will remain in the RM3.20 to RM 3.35 zone and with GBP will be in RM5.35 to RM5.55 region.

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The Malaysian Ringgit

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