KUALA LUMPUR, Feb 19 — The Malaysian currency will rise to 4.05 versus the US dollar by year's end with the conclusion of local political controversies including 1Malaysia Development Bhd (1MDB), said UOB in a research note today.
The local bank said the disposal of the long-standing political scandals together with the country's economic performance, which topped analysts' predictions in the previous quarter, prompted it to upgrade its outlook for the ringgit.
“We continue to hold the view that with domestic headwinds receding especially on the political front and resolution of 1MDB issues, this should pave the way for a stronger Ringgit compared to last year,” it said.
“Given revision in our US Fed rate outlook with fewer hikes this year and recent ringgit strength, we revise our end-period USD/MYR forecasts to 4.25 by mid-2016 (vs. 4.36 previously) and 4.05 by end-2016 (vs. 4.20 previously),” it said today.
But it added that a pivotal factor would be Putrajaya's choice to replace outgoing Bank Negara Governor Tan Sri Zeti Akhtar Aziz, who is due to retire in April.
UOB pointed out that Zeti's reputation as one of Asia's most independent central bank chiefs had helped mitigate concerns about Malaysia while investigations into 1MDB was ongoing, and that a non-political replacement would help bolster the market's continued confidence in the independence of BNM.
UOB echoed Zeti's call for her successor to not be a politician, but a person with relevant financial experience, and ideally an individual with a banking background.
The ringgit was Asia's worst performing currency in 2015, shedding 18 per cent in value against the US dollar last year.
Although the decline was largely caused by a global commodities crash, both financial analysts and economists believed that the controversies surrounding 1MDB and the RM2.6 billion deposited in Prime Minister Datuk Seri Najib Razak’s accounts in 2013 had exacerbated the depreciation.
UOB today pointed out that the ringgit has since shed its position as the worst performing regional currency, with its 3 per cent improvement against the US dollar this year being one of the strongest recoveries so far.
The ringgit is currently trading at 4.22 against the US dollar.
Najib said yesterday that his administration will announce Zeti's replacement shortly.
Attorney-General Tan Sri Mohd Apandi Ali announced last month that he found no evidence of wrongdoing in the corruption probes on SRC International, a former 1MDB unit, and on the RM2.6 billion transfer into Najib's private bank accounts.
He then directed the Malaysian Anti-Corruption Commission (MACC) to close both cases.