Currencies weaken across emerging markets due to currencies devaluation war is on the table. However, RM dropping more than most currencies. Perhaps lake of confidence due to 1MDB or political issues.
However we think may be is due to the reason oil price dropped to USD 40 per barrel. As Malaysia planned budget on USD 110 per barrel. In the review of budget and projects last few months ago. Only certain uninterested projects were stopped.
Are we going to borrow to finance our budget? With the new GST of 6% started April 2015. We believe RM weakness added with deliberate intension to cushion the budget planned. As we cannot stop projects end up may affect GDP growth lead by infrastructure development.
Oil price drop from USD 110 to USD 40. Perhaps RM may need to adjust 40% – 50% in order to balance the planned budget? Or may be around RM 4.2 to RM 4.3 against USD? Perhaps only until new budget announced in October 2015.