Ringgit May Weaken to 3.80 Dollar-Peg Level
Ringgit may weaken by year-end to a level when it was pegged at 3.80 to the dollar, should the central bank desist from intervening.
Global financial turmoil and a domestic power struggle may spur capital flight from the Southeast Asian economy, while a plunge in prices of commodities the country exports, including crude oil and palm oil, will put pressure on the currency to depreciate. The ringgit is Southeast Asia's second-worst performer in the past few months.
Ringgit was fixed at 3.80 per dollar in September 1998, among capital control measures aimed at stemming outflows during the Asian financial crisis. Abdullah scrapped the dollar link in July 2005, within an hour of China's decision to remove its decade-old link to the U.S. currency.
Oil traded below $60 a barrel, 60% lower from a record $147.27 set on July 11. Palm oil prices have slumped from their peak in March. Malaysia is the world's second-largest exporter of the cooking oil. Both the commodities accounted for 14.5% of the exports in the first half of the year.
The weak ringgit will help local companies boost their export earnings, but make import of food products more expensive.
Najib on November 4 cut the 2009 growth forecast to 3.5% from 5.4%. That would be the slowest economic expansion since 2001. The government on the same day unveiled a 7 billion ringgit package to spur growth.
Abdullah said it wasn't yet time to intervene as the currency's decline "has not reached a worrying level."
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