KUALA LUMPUR – Maybank Research sees the ringgit ending this year firmer at RM4.60 versus the American dollar on the expectation of 50 basis points cuts in the US interest rate later this year, amid a stable overnight policy rate (OPR) in Malaysia.
The research house said the pressure on the ringgit due to the interest rate differential factor that contributed to the US dollar strength since 2022 will ease.
“The ringgit has stabilised against the US dollar after coming under pressure due to shifting expectations on the timing and quantum of US interest rate cuts.
“It traded within the RM4.68 to RM4.71 range versus US dollar from May 15 to May 31, 2024 after weakening to the low of RM4.80 twice this year on Feb 20 and April 16 (end-2023: RM4.59),” it said in a report called Asean Frontiers: The New Trailblazers.
Maybank said the ringgit’s recent performance reflects the positive macroeconomic performance and prospects plus ongoing reforms and restructurings.
It noted “Bank Negara Malaysia’s (BNM) verbal and forex market interventions, and the administrative measure to encourage government-linked companies and investment funds – together with private sector corporates including exporters – to repatriate their foreign exchange earnings and investment income abroad and convert into ringgit.”
On the OPR, the firm said the “key domestic wildcard is inflation” following the introduction of the Account 3 by the Employees Provident Fund (EPF) as consumer spending surge from Account 3 withdrawals.
“This can pose additional upside risk to inflation via demand-pull inflation, on top of the expected impact of the implementation of the targeted fuel subsidy rationalisation this year.
“This, in turn, could lead to upside risk in the OPR outlook, which we currently expect to remain stable at the current level of 3.00% until end-2025,” it added.
On the Kuala Lumpur Composite Index (KLCI), Maybank said the KLCI has had a good run in the first five months of 2024, rising 7.1% in US dollar terms – and has been one of the best performing markets in the region.
However, in terms of fund flow, foreign investors were still generally net sellers, disposing RM760 million worth of shares from January to May 2024, but against regional peers, the net sell on Malaysia equities had been the lowest.
“For May, they were prominent net buyers in the first three weeks but reversed to a net sell in the fourth week,” it noted. – June 10, 2024