The Malaysian central bank (BNM) has introduced a range of measures to stabilise the ringgit, which has been the region’s worst performing currency over the past month. The most significant step it has taken so far is a requirement for exporters to convert 75% of their export earnings into domestic currency. According to BNM, only 1% of export proceeds between 2011 and 2015 were converted into ringgit. We estimate this measure should increase demand for the ringgit by around 70bn ringgit per year. But while this sounds like a big deal, it is the equivalent to just 3.5% of the average daily turnover of the currency. Other factors will have a bigger impact. Our US team is expecting the Fed to hike rates aggressively over the coming months, with the first hike likely to be later today. Higher interest rates in the US are likely to put downward pressure on the ringgit. But with rising oil prices likely to provide some boost to the currency, we expect the ringgit to hold up relatively well. Our forecast is for the ringgit to finish 2017 at 4.50 to the US dollar, compared with its current level of 4.44.
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