KUALA LUMPUR – The ringgit is expected to end firmer at 4.60 against the US dollar by the end of this year, said Maybank Investment Bank Bhd (Maybank IB).
Group chief economist Suhaimi Ilias said the forecast of a stronger ringgit follows the US Federal Reserve’s (Fed) interest rate cut expectation and Bank Negara Malaysia’s (BNM) decision to maintain the overnight policy rate (OPR) at 3%.
He said the Fed is expected to start cutting interest rates as soon as September and there will be three rate cuts during the Federal Open Market Committee meeting in September, November and December, totalling 75 basis points.
“Looking at next year’s futures markets pricing, there is another 100 basis points in Fed fund rate cuts on the wing. At the same time, we are taking the view that BNM will maintain the OPR at the current level.
“This dynamics on interest rates between the two central banks should be further supportive of the ringgit.
“Hence, we are looking at the ringgit ending the year at 4.60 against the greenback,” he said in a webinar today.
Suhaimi said positive real gross domestic product growth, political stability, clear policies, robust approved investments and BNM’s foreign market intervention are among the factors helping the ringgit to stabilise.
“The ringgit has been trading below 4.70 against the US dollar for at least two weeks and we believe the efforts by the central bank to stabilise the ringgit and to rebuild external reserves through these repatriate-and-convert measures are taking shape.
“Looking at the first quarter of this year, the current account surplus improvement from the fourth quarter of last year was largely driven by higher inflows of investment income,” he said.
Suhaimi said the current account surplus improvement strongly suggests that Malaysian corporates are responding positively to efforts by the government to encourage the repatriate-and-convert mechanism.
On February 29, 2024, Finance Minister II Datuk Seri Amir Hamzah Azizan said in Parliament that coordination between the Finance Ministry and BNM, as well as joint efforts between government-linked investment companies and government-linked companies, will help increase inflows into the foreign exchange market to strengthen the value of the ringgit.
Meanwhile, Maybank head of FX research Saktiandi Supaat expects the US dollar to strengthen about 1 to 2% from now until early November.
“In the period following the elections or around the time of the elections, I believe that concerns about a trade war between the US and China would have a significant impact on the strength of the dollar.
“We observed this phenomenon in 2018 when the US dollar became notably stronger compared to Asian currencies and the Japanese yen,” he said.
Maybank IB head of equity research Wong Chew Hann said the first half of 2024 (H1 2024) saw Malaysian equities perform well due to economic restructuring and fiscal reforms, particularly the National Semiconductor Strategy and the Johor-Singapore Special Economic Zone (JS-SEZ).
She said H1 2024 also witnessed the FBM KLCI chart at a multi-year high after three years of losses (+9.3% in the first half of 2024), foreign fund flows experiencing higher volatility (RM830 million outflow in H1 2024), and earnings momentum receiving a positive uplift.
“For the outlook in the second half of this year, among the key lookouts is fuel subsidy rationalisation, especially regarding RON95, and the JS-SEZ deal expected in September.
“We remain optimistic and maintain our year-end FBM KLCI target, which is 1,680, (this) implies 15 times price to earnings ratio for the 12-month forward,” said Wong.
She said key risks to Maybank IB’s views on equities are the US election, a higher-for-longer US interest rate environment, and the Russia-Ukraine and Middle-East instability escalating.
For Malaysia, Wong said a focused government in delivering reforms will be a key supporting factor. – July 23, 2024