Bank Negara Malaysia expected to raise of 25 basis points (bps) Ringgit Malaysia be the best returns Asian currency

[Sinchew Daily] (Kuala Lumpur 5^th) Bank Negara may increase of interest rate at least once time in this year, lead ringgit Malaysia become best returns Asian currency on carry trade.

Over the past three months, carry trade return rate for Ringgit against the US dollar reached 2.8%, compare to Philippines Peso of 1.9% and China RMB of 1.8%. Barclays Group and Bank of America Merrill Lynch are predicted Bank Negara will again rising of 25 basis points.

After 3 years, Bank Negara first time raised the interest rate to 3.25% in this July, interest rate swap increase of 3.71%. Malaysia is ASEAN’s first country implement of tight monetary policy in year 2014, lead the analysts consecutive 4 months increase year-end target level of Ringgit Malaysia, being the most in ASEAN currency market.

Economist of Bank of America Merrill Lynch in Singapore, Mr Chua Hak Bin noted, with the market forecast that Bank Negara will again raise interest rate within this year, Ringgit Malaysia performance will better than other currencies.

He noted that, others than Philippines has raise in last week, Taiwan might also raise of interest rate by the end of this year. The rest of Asia countries will not tighten the monetary policy, even some may decrease the interest rates.

Golden Sachs is optimistic to Ringgit Malaysia (RM), mainly because the position taken by Bank Negara when implement of monetary policy, especially Malaysia will benefit from China’s economic growth. China is Malaysia second largest export market.

Last month, Goldman Sachs increase the 6 months target price for RM against USD, from RM3.23 increase to RM3.1. Bank of America Merrill Lynch forecast Ringgit Malaysia exchange rate will increase to RM3.15.

do a survey among 15 economists, 10 economists forecast President of Bank Negara Tan Sri Dato’ Sri Dr. Zeti Akhtar Aziz will increase the interest rate to 3.5% in this year-end, and the remaining 5 others speculate remain unchanged.

Average exchange rate of RM3.22

This year there are two more monetary policy meeting for Bank Negara, respectively falls on September 18 and November 6. Research showed that the average Ringgit Malaysia rate will be fall on RM3.22. As of 4^th of this month, Ringgit Malaysia exchange rate for US Dollar is RM3.2020.

On last month 25^th, UBS analyst in Singapore say that the inflation rate rise to 3.3% in June, the seventh consecutive month beyond the forecast of Bank Negara. In April next year, Malaysia will implement of the consumption tax, is expected to rise the inflation to 4% or above.

Singapore Barclays strategic planner noted that Malaysia is the best economic growth in region, and has a very hawkish National Bank. Meanwhile, increase of inflation rate so that National Bank can comfortably appreciation of Ringgit Malaysia.

Bank Negara announced increase 25 basis points on July 10, indicating that inflation may fall above the long term average, economic prospects are good.

Malaysia's three-year rate of return on government bonds, spreads over US Treasury bonds over the same period to expand the level of 8 basis points to 259 basis points, while the National Bank said that monetary policy needed to be adjusted in order to overcome the financial imbalances.  Comparison of the Philippines is 228 basis points.

Malaysian Ventures Management currency strategist said, even if the United State raised the cost of credit, Malaysia will also raise the interest rate, try to maintain the gap between USD against RM.

He pointed out that, Malaysia currently falls to a tightening conditions, if United State increase the cost of credit, so that will lead the minor gap for interest rate, thus providing the support to Ringgit Malaysia. Otherwise, the Ringgit Malaysia’s carry trade will be unprofitable.

BNP Paribas report noted that foreign funds continuously buy Malaysia’s sovereign bonds, lead the increasing of 46.3% to 46.7% from May to June.

Barclays Group recommends investors using of Singapore Dollar to purchase Ringgit Malaysia, target level of 2.5277 ringgit. Performance of Malaysia’s current account also support for the ringgit.

Also expected that exchange rate for ringgit will surpass regional peers. Mainly cause by strong economic growth momentum, surplus of current account and expected adjustment of interest rate again to cope with inflationary pressures.

With the Bank Negara raised interest rates, corporate bonds premium contract compare to government bonds. Would threaten Malaysia’s Sukuk which increasing for 6 months.

From end of January until now, Malaysia corporate Sukuk raise 2%, and rushed to peak point on 31 July for 106.389 points.

Since 18 July, after continuous 14 months peak point, Malaysia non corporate Sukuk return rate drop of 7 basis points to 87 points.

CIMB fixed income research analyst noted that, there are limitation increment for corporate Sukuk, caused the interest had reach to a normal levels. The bank also predicted that the National Bank will be further increase 25 basis points on this year or next year.

National Bank raised 25 basis points to 3.25% in July in order to restrain the level of household loan to 86.8% (57% for year 2002) and to reduce the financial imbalances. Expected Bank Negara Malaysia will raise again 25 basis points in this year, especially when 1 of April 2015 will implement of GST (Goods and Services Tax)

According to survey shows that Malaysia inflation rate for 2014 is expected to reach the level of 3.3%, for 2013 is 2.09%. Malaysia June inflation reach of 3.3%, nearly closed to the high record in March of 3.5%.

Statistic show, this year Ringgit Malaysia Sukuk volume allotted increase of 86% to 38.7 billion Ringgit Malaysia.

Bank Muamalat Malaysia establish a total value of 2 billion ringgit Sukuk program, Armada (5210, Board of trade and service group) issue total worth 1.5 billion ringgit Sukuk, as well as CIMB Islamic Bank has plan to sell 5 billion ringgit Sukuk to meet the financial need of Basel III.