Focus on Ringgit Fundamentals?

From the Edge:

KUALA LUMPUR: The government will focus on the country’s fundamentals amid concerns over the weakening ringgit, which hit its lowest level since September 2006 to touch 3.7665 versus the US dollar yesterday, said Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar.

“I am not able to comment on the value of the (local) currency, but despite the weakening trend, we will still stick to focus on our (economic) fundamentals,” he told pressmen after opening the Second National Economic Summit organised by the Asia Strategy and Leadership Institute here yesterday.

According to Reuters, the ringgit hit a nine-year low and the Indonesian rupiah set a fresh 17-year low yesterday, after robust US jobs data bolstered expectations of an interest rate hike by the US Federal Reserve before year-end. The rupiah fell to as low as 13,380 against the greenback, its lowest level since August 1998.

Asked if concerns over the beleaguered 1Malaysia Development Bhd (1MDB) are part of the root cause that dragged the local currency, Abdul Wahid said in regards to the local financial system, the strategic development company poses no systemic risk.

“The financial system is stable, the banks are well capitalised, and the government has implemented steps to widen the revenue base so as to sustain through any implication,” he said.

The currency world is an extremely fickle market.  Fundamentals can turn on an instant regarding exports and imports.  But what is really ailing the Ringgit?

I for one think the ringgit is way oversold at this time as fundamentals don't reflect reality Right now.  But likely it will reflect the state of the Ringgit in the near future.  I've talked about how the Deficit as a percent of GDP is crucial in the banking industry.  Massive cash calls are inbound if Malaysia doesn't get 4 percent GDP growth in 2015.

The GST will likely have an effect most are not predicting.  4-5 percent GDP growth?  Granted 5 percent GDP growth happened for the 1st quarter.  If we say the remaining GDP growth for the next 3 quarters are 0 percent.  The average is likely 1.5 percent GDP growth for the year.

What 0 percent GDP?  are you crazy.  It may not happen but its not a crazy number.  GST has been shown to decrease GDP worldwide over a quite a few countries. Every 1 percent tax is roughly equivalent to 1 percent reduction in GDP.  We have 6 percent GST in April.  By this oversimplified comparison, negative 1 percent GDP for the next 3 quarters is the real number.  That puts our GDP at just over 0.5 percent for 2015.