Political instability weighing down on ringgit - Fitch Solutions

 

The ringgit is being weighed down by political instability, Fitch Solutions said in a Country Risk & Industry Research report.

For example, it said the third wave of Covid-19 infections was partly due to unstable coalition politics hobbling the government's ability to swiftly respond to the pandemic in the fourth quarter of last year.

The third wave of Covid-19, together with fiscal and monetary easing needed to support the economy through the pandemic, had "significantly" weakened the short-term outlook, according to the firm.

As such, it has revised its 2021 average exchange rate forecast for the ringgit/US dollar exchange rate to RM4.15 from RM4.05.

In the long term, Fitch Solutions said the local currency could trade slightly stronger due to a weakening bias in the US dollar, and rising oil prices.

This is also because the ringgit had been undervalued in its real effective exchange rate.

"However, we note that risks to this strengthening view remain, especially due to still-elevated political risk, where instability continues to weigh on investor sentiment regarding the country," Fitch Solutions said in its report today.

It noted that an election will likely be held by end of this year or early next year, and could give Malaysia the third government since 2018. - Mkini