Ringgit, Reserves, Revaluation
- of cabbages and kinks - said...
I would be grateful if you explain this statement: "Bank Negara's international reserves at a steady US$79.3 billion, meaning the ringgit should see at least room for a 5% gain over the next 12 months." How does the reserves affect the appreciation? Why 5% ?
I see 5% gain over the next 12 months, not because of the reserves, the reserves act as a basis for supporting a stronger ringgit over the near to medium term. The reserves do point to better management of ins and outs. If you look at the correction in emerging marts in May, it was swiftly followed by a correction in currencies of emerging marts, but there were three or four currencies which rebounded well. Besides the Chinese yuan, which was managed, so it did not move much - the currencies which rebounded well included the Brazilian real and ringgit, bit "where there is surpluses in trade and reserves". My statement only lends crednce to my opinion that the ringgit will have more institutional followers (not fresh shorts) when BN allows the ringgit to appreciate in tandem with the yuan. If you market the currencies next to each other for the last 6-9 months, you will find that the ringgit has the closest correlation to the yuan, and thats not coincindental.
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