Ringgit to benefit from yuan revaluation

KUALA LUMPUR: The revaluation of the yuan will strengthen the ringgit as it is a proxy currency, said CIMB Investment Bank Bhd.

“Last month, the People’s Bank of China (PBOC) indicated a more flexible exchange rate and is moving towards a basket of currencies. This is poised to strengthen the ringgit further,” said its regional rates and FX strategist Suresh Kumar Ramanathan.

He said it anticipated a widening of the band from the existing 0.5% versus the US dollar from its daily central parity which may be in excess of 0.75% but below 1%.

Suresh said a daily adjustment of the yuan versus Asean currencies like the ringgit (MYR) and Singapore dollar (SGD) were likely to be introduced as part of liberalisation of yuan for international trade purpose.

“We foresee a 3% revaluation of yuan if PBOC allows widening of the band and if PBOC uses a crawling peg, it would move the mid-point to a maximum of 3% from where it is trading currently on a gradual manner,” he said at the CIMB Private Banking Investment Conference yesterday.

Suresh was speaking at the session titled “Will Southeast Asian Currencies Piggy Ride on a Strengthening Yuan”.

He said a yuan revaluation would see MYR being further strengthened, and the ringgit had seen a 4% gain versus the US dollar (USD) year-to-date. He added that correlations between the Asean nations’ five currencies (Indonesia, Malaysia, Philippines, Singapore and Thailand) and the yuan had been intense since January 2008, which signalled the USD was playing a smaller role in building up market expectations in the region.

“We also expect the Asean 5 countries to appreciate immediately if yuan revaluation occurs. A 3% revaluation might induce Asean 5 FX to appreciate between 1.04% and 2.9%,” he said.

“The euro is going to be a problem with Greece and Spain, and we might see the top five reserve banks in Asia liquidating their euro or they would make more losses. The sterling pound would also weaken as we foresee another election next year,” he said.

“All this would contribute to the stregthening of the yuan and so boost the currencies in the Asean countries.”

Suresh said MYR was anticipated to be valued at 3.10 (per USD) in September, and 3.05 in December 2010. The current spot for MYR is 3.21.


This article appeared in The Edge Financial Daily, July 8, 2010.