KUALA LUMPUR: An economist said it is not too far fetched for the ringgit to reach below 4 against the US dollar in the near term, in the wake of the big 50 basis points (bsp) rate cut by the US Federal Reserve (Fed).
At noon today, the ringgit strengthened to 4.1789 against the US dollar, supported by the recent rate cut by the US Fed.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that the 50 basis points rate cut by the Fed has narrowed the gap between federal fund rate and the overnight policy rate.
The smaller gap would improve the appeal of ringgit denominated assets.
He added there is a possibility for the ringgit to hit below RM4 with the positive catalysts.
"There is always a possibility for such a level to be achieved especially when the ringgit still has an upside potential. "Therefore, assuming there is going to be a mean reversion, ringgit would appreciate further in light of the positive catalysts and therefore, dollar-ringgit below RM4 may not be too far fetched," he told Business Times.
He added based on the long term average, the ringgit-US dollar has averaged at RM3.78 since the country removed the currency peg in 2005 until now.
Meanwhile, the ringgit also strengthened against the Singapore dollar to 3.2388 at noon.
"The strength of the ringgit is broad based. Plus, the growth prospect for Malaysia has become exciting in light of the stability in the political landscape and clarity in policy making," added Mohd Afzanizam.
The local currency has appreciated almost 10 per cent year-to-date.
In an email reply to Business Times, Bank Negara Malaysia said ringgit's recent recovery is driven by the shift in expectations of lower interest rates in major economies, particularly the US, as well as Malaysia's strong economic performance.
"Malaysia's positive economic prospects and structural reforms, complemented by initiatives to encourage flows, will continue to provide enduring support to the ringgit," added the central bank.