KUALA LUMPUR: More economists have backed the view that the ringgit will likely strengthen after the US debt ceiling crisis has been averted.
UCSI University Malaysia assistant professor of finance Dr Liew Chee Yoong feels that the ringgit would appreciate soon now that the debt ceiling crisis had been resolved.
"It's reasonable to assume that the resolution of this debt ceiling issue will have a positive impact on the global economy including Malaysia. This will help strengthened the ringgit I foresee this as very likely to occur," said Liew, who is also a fellow at the Centre for Market Education.
Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said the current pressure on the ringgit was merely speculative and short term since Malaysia's economic fundamental was still strong.
Ahmed Razman noted that the US economy could collapse if the debt ceiling was not raised since liquidity and businesses would be affected.
"This will force investors to look for safe-haven investments. (In this case) they will flock to buy US dollar. This causes the ringgit to depreciate against the dollar and hence seems to be unstable.
"To alleviate this pressure, the government needs to strengthen our exports and reduce dependency on imports. This can be done by fostering domestic production," he told the New Straits Times.
Universiti Malaya Business and Economic Faculty deputy dean Associate Professor Dr Izlin Ismail said the debt ceiling crisis had led to an increase in the US borrowing rates. Hence, investors were attracted to buy the US treasuries, and this was the reason for the stronger dollar the past week.
Izlin noted that any effect of the debt ceiling resolution on exchange rates should be evident by now.
"We should see an increase in demand for US treasuries and perhaps a slight weakening of the US dollar exchange rates. Now that the debt ceiling crisis is over, the US Federal Reserve will shift focus back to fighting inflation.
"Let's hope that interest rate increases has been paused. Otherwise, if the US Fed increases interest rates to fight inflation and if other countries do not follow suit, you will see the other currency depreciating."
Izlin added that the situation did not quite apply to Singapore dollar as the currency was a safe-haven investment in Asia Pacific.
"Money would flow to Singapore even if its interest rates are lower due to flight to safety," she remarked.
USCI University's Liew agreed that the uncertainty surrounding the debt ceilimng issue could have caused investors to shift their investments to safe haven assets i.e. US Treasury bonds.
"Even though the US government was facing a debt ceiling crisis, global investors were still confident in investing in US Treasury bonds as they were confident that the US government would still be able to repay them.
"Even if the debt ceiling crisis failed to be resolved, it does not automatically imply that the US government would default on its debts. It just mean that the US government would not be able to increase their debt capacity above a certain limit but that does not mean it would default on its debts although there was a likelihood that this can occur."
He added that global investors were still confident in investing in the US Treasury securities particularly during times of uncertainty and high risk.
"This is the reason why the ringgit had depreciated against the greenback lately as global investors shift their investments to US Treasury securities in their 'flight to quality'.
"Once the US debt ceiling problem is resolved, investors will become more confident in the global economy and return to investing in emerging markets like Malaysia and the ringgit will recover from its depreciation and be strengthened against other international currencies like the US dollar," Liew said.