KUALA LUMPUR – It would be a long shot to predict that the ringgit would recover by the third quarter of 2017 ― let alone at a value of RM4.10 against the US dollar ― market observers said.

According to Asian Development Bank’s lead economist on trade and regional cooperation Dr Jayant Menon, the US dollar is currently appreciating against most Asian currencies and it would be over-ambitious to expect the ringgit to buck this trend.

“An improvement in commodity prices in general, and oil in particular, could stem the decline [of the ringgit to a certain extent].

“But domestic uncertainties relating to fiscal and other conditions especially related to the stronger US dollar will likely limit the strengthening of the ringgit,” he told Malay Mail Online.

Socio-Economic Research Centre executive director Lee Heng Guie shared the same view, saying that the ringgit would remain under pressure throughout the year.

The economist concurred that the currency will continue to face headwinds from public’s expectations of a higher US interest rate and resurgent dollar, as well as a swing in capital flows.

Despite some measures adopted by Bank Negara Malaysia to prevent it from weakening rapidly, Lee said it was still a far-fetched prediction to strengthen the currency by September to such figure.

“The extent of the ringgit’s rebound not only depends on the economic forces but is also influenced by domestic and foreign investors’ confidence.

“It is the negative sentiment and perceptions which are unpredictable that could lead a further markdown of the ringgit,” he said when contacted.

In a statement, BMI Research forecasted the ringgit to weaken further due to the same reasons cited by the two economists and predicted the currency to average RM4.50 against the greenback for the rest of the year and RM4.40 in 2018.

This was a lowered prediction compared to its previous forecast of RM4 and RM3.88 for the respective periods.

“Risks to our ringgit forecast are weighted to the downside. First, the ringgit could face greater than expected capital outflows should the Fed hike rates at a faster than expected pace,” it said, referring to the United States Federal Reserve.

“Second, Donald Trump’s presidency increases the likelihood of a slowdown in global trade, while additional protectionist measures would be negative for Malaysia’s export sector.”

The risk of China allowing its yuan to depreciate aggressively, it said, could also weigh significantly on the ringgit.

Deputy Finance Minister I Datuk Othman Aziz was reported saying last week that the ringgit will rebound to a fair value of 4.1 against the US dollar in the third quarter of the year.

National newswire Bernama cited him saying bankers had forecasted the rebound based on improving commodity prices such as rubber and palm oil and steady economic fundamentals.

Othman noted that investors would remain on the sidelines until Trump’s swearing-in ceremony on January 20 but dismissed speculation of the situation of getting from bad to worse after the ceremony.

Treasury Secretary-General Tan Sri Dr Mohd Irwan Serigar Abdullah has said Malaysia is doing well and projected that the economy is on track to grow between 4.5 and 5 per cent this year.

He also rubbished claims that issues related to the 1Malaysia Development Bhd was contributing to ringgit slide.

– Malay Mail