Ringgit to Decline 4.5% After By-Elections, ING Says

April 8 (Bloomberg) -- Malaysia’s ringgit may weaken as much as 4.5 percent after the opposition coalition, led by Anwar Ibrahim, won two out of three regional elections, according to ING Groep NV, the biggest Dutch financial-services company.

The by-elections were seen as a gauge of support for Prime Minister Najib Razak, who took over from his predecessor less than a week ago. Declining foreign-exchange reserves and a likely drop in the Singapore dollar will further pressure the ringgit to weaken, ING said.

“Political risk is very elevated,” Tim Condon, Singapore- based head of Asia research at ING wrote in a research note today. The ruling coalition “has been on the ropes since its worst-ever general election performance a year ago.”

The ringgit sank 1 percent to 3.6295 against the dollar as of 12:20 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It has lost 4.2 percent so far this year.

The currency may tumble to 3.80, a level at which it was pegged to the dollar until July 2005, before Bank Negara Malaysia steps in to stem losses, Condon wrote. Central banks influence exchange rates by arranging sales or purchases of currencies.

A central bank report yesterday showed gold and foreign- exchange reserves fell 3.1 percent in the two weeks ended March 31, the biggest drop this year. The nation’s total foreign- exchange reserves slid to $88 billion on March 31, from as high as $125 billion on June 30.

Singapore Devaluation

The Monetary Authority of Singapore may devalue the city’s currency and allow it to drop 4 percent against the U.S. dollar by June 30 to lift the economy out of its worst recession since independence in 1965, a Bloomberg survey showed on March 30.

“If now is not the time for Singapore to adopt a clearly accommodative monetary policy, then we don’t know when is,” wrote Sean Callow, a Sydney-based currency strategist at Westpac Banking Corp., Australia’s largest lender by market value.

Singapore’s dollar may fall to S$1.54 against the greenback “in the days following the review” on April 14, Callow said in the note.

Najib was sworn in as Malaysia’s prime minister on April 3, replacing Abdullah Ahmad Badawi, who last year led the coalition to its narrowest election victory since independence in 1957. He has pledged to bring change and end corruption within the United Malays National Organization, the main party in the ruling national alliance.

The new premier has unveiled a 60 billion ringgit ($16.5 billion) stimulus package to help the economy weather the global financial crisis. Najib, who is also the finance minister, had said on March 10 that he expects the economy to shrink 1 percent at most this year, the first contraction since 1998.

Ringgit-Rupee

Investors should sell the ringgit against India’s rupee as “the rupee-ringgit cross could go up quite significantly in the second quarter,” wrote Sebastien Barbe, a Hong Kong-based head of emerging-market research and strategy at Calyon, the investment banking unit of France’s Credit Agricole SA.

“India is much less vulnerable to the global downturn than Malaysia,” Barbe said in the note today. “India benefits from relatively not-too-high oil prices which is not the case for Malaysia. Interest rates are also much higher in India than Malaysia.”

The rupee may rise to as high as 0.077 ringgit in coming months, Barbe said in the note. The rupee-ringgit cross traded at 0.0717, according to data compiled by Bloomberg.