Ringgit weakening coupled with higher oil prices will push inflation higher at least for the first and second quarter of this year.
According to Forex Strategist Suresh Kumar Ramanathan, the ringgit will likely stay weaker until second quarter despite measures introduced by Bank Negara Malaysia (BNM) to stabilise the local unit.
“It is very likely the price pressure would go up because you have double factors. First is the oil prices, and second is the weakening of ringgit, which will push import costs higher.
“Naturally, we would have higher inflation, but this will be offset by the weaker domestic demand due to higher prices. If domestic demand were to weaken, it will curb the inflation rate," he said when contacted by Astro AWANI.
He said it is very likely that in the first and second quarter, the ringgit will remain unchanged from where it is right now and oil prices remain higher.
“Naturally, if the ringgit moves lower, then we can expect lower inflation pressure, but this depends on the measures that Bank Negara probably would introduce.
“The measures that were introduced on 2nd December 2016 by the central bank have not help the ringgit to appreciate further, but the local unit is stabilised,” he added.
Suresh said the United States Federal Reserves (The Fed) rate hike this month will further push the ringgit to a lower value against the greenback.
Apart from that, the tax cuts and new economic policies that will be announced by President Donald Trump would strengthen the US dollar to a record high, subsequently will impact the ringgit.
The ringgit opened lower against the US dollar this morning at 4.4480/4520 versus the greenback.
Malaysia’s Consumer Price Index rose 3.2 per cent in January from a year earlier, data from Statistics Department showed.
Malaysia's government said in October, it expected inflation to remain between 2 and 3 per cent in 2017.
Meanwhile, Oanda Senior Forex Analyst Stephen Innes said higher inflation is inevitable as the oil prices recover and the ringgit lower.
“Yes, the ringgit will depreciate further. I don’t think it will be a massive depreciation but more gradual, because BNM has fairly good measures to control ringgit performance.
“I don’t think the ringgit will depreciate beyond RM4.60 even after The Fed raises its interest rate this month," he said, adding that investors are still keen in the regional markets that will support the currencies performance.
Najib Aroff
Thu Mar 02 2017
U.S Federal Reserves (The Fed) rate hike this month will further push the ringgit to a lower value against the greenback. - Filepic
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