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NEWS UPDATES 19 August 2010

Ringgit Rises To Strongest Level

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The ringgit rose to its strongest level in more than 28 months on better-than-expected second-quarter gross domestic product (GDP) growth of 8.9 percent and news that Bank Negara Malaysia has eased regulations on ringgit transactions for trade settlement.

"The local unit surged to a 28-month high today, the highest since April 28, 2008. It was traded at 3.1280 against the greenback this morning," said a bank dealer.

Yesterday's ringgit liberalisation announcement by Bank Negara will similarly support the ringgit as the currency will be transacted more freely in the international market, RAM Holdings Bhd's economist Jason Fong told Bernama on Thursday.

The central bank announced that a resident company is now free to convert and hedge foreign currency into ringgit, meaning all limits on cross-border foreign currency inter-company borrowings are now abolished.

Further, Bank Negara's liberalisation of foreign exchange administration rules will pave the way for greater usage of the local currency in the international market, boosting demand for the ringgit.

MIDF Research also expects the ringgit to strengthen further against the US dollar this year and 2011, due in part to the dollar-carry trade stemming from Bank Negara's cumulative 75 basis points of rate hikes this year and the recovery in economic growth.

"We expect that the USD/MYR exchange rate to be at 3.10 by end-2010 and 3.00 in 2011," the research house said.

RAM Economics maintained its forecast of RM3.00 against the US dollar by end-year, supported by factors such as differing growth prospects of Malaysia and the United States this year.

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