Mixed outlook seen for ringgit

 

SPI Asset Management reckons that the ringgit would trade at the RM4.45 range versus the US dollar this year before ending the year at RM4.35. (Bernama pic)

PETALING JAYA: The outlook for the ringgit is seen mixed but it may end on a firmer note by the end of the year due to improving growth in China and on anticipation of a pause in the US interest rate hike. A strong recovery of the Malaysian economy will provide further support.

The currency, which is currently hovering at the RM4.40 level against the greenback, is expected to strengthen to RM4.25 at the end of this year, MIDF Research said.

“Fundamentally, the ringgit is in a good position as the domestic economy remains on an upbeat momentum, and as a net exporter of crude petroleum, liquefied natural gas and palm oil, Malaysia stands to benefit from the elevated global commodity prices,’’ the research house was quoted as saying in a Bernama report.

Against the greenback, the ringgit on average is expected to weaken from RM4.15 versus the US dollar last year to RM4.28 in 2022.

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Despite its depreciation against the greenback, the ringgit performed better than other major currencies during the first five months of this year.

The local unit gained 8.4% against the Japanese yen, rose 5.4% vis-a-vis the euro, strengthened 3% versus the Australian dollar and increased 1.7% against the British pound.

However, SPI Asset Management managing partner Stephen Innes reckons that the ringgit would trade at the RM4.45 range versus the US dollar this year before ending the year at RM4.35.

Asked about the ringgit’s potential to move sub-RM4.20, Innes said the ringgit was not expected to strengthen beyond RM4.20 against the dollar anytime soon as the greenback remained “the darling” in anticipation of an even faster pace of rate hikes by the US.

UOB Malaysia senior economist Julia Goh gave a weaker projection for the ringgit at RM4.46 to the dollar by the end of the third quarter (Q3) and RM4.48 by the end of Q4 of this year amid the downside risks due to scepticism on China’s economic recovery, coupled with a weakening yuan.

It is no secret that the US dollar is considered a safe haven by investors as global economic fragilities continue to grow due to many variables at play.

“The US Federal Reserve (Fed) will continue to tighten the discount rate as the inflation outlook remains strong in the US,” Juwai IQI Global chief economist Shan Saeed said.

The Fed is expected to take rates to between 2.5% and 3.25% by year end. It remains hawkish for the second half (H2) of 2022.

“We expect the Fed to change course and commence quantitative easing (QE5) next year as advanced economies can’t take the pressure of higher interest rates post-Covid-19 situation,’’ he told Bernama.

Bank Negara Malaysia (BNM) is expected to hike the overnight policy rate (OPR) to between 2.25% and 2.5% by year end in line with market expectations.

He reckons that the central bank would have a structured approach to raising rates.

“In the last two years, BNM has navigated the Covid-19 challenges successfully by sagaciously using the monetary policy levers to bolster gross domestic product growth at the macro level.

“If we analyse the global central banks, 39 central banks have raised rates this year to tame inflation. The global economy is heading for a higher interest rate regime for the next two to three years,’’ he added.

On May 11, the central bank decided to raise the OPR by 25 basis points (bps) to 2% from a record low of 1.75% after global inflationary pressures increased sharply.

According to Innes, BNM does not need to over-deliver and follow the US’ move to aggressively increase interest rates in a move to tame inflation.

Maybank Investment Bank Bhd chief economist Suhaimi Ilias had said a 100 bps hike in the OPR is likely in the next 12 months.

Maybank IB has revised upwards its inflation rate forecast for this year to 3.4% from 2.7% previously and increased the inflation rate projection for 2023 to 4.1% from 2.5%.

The US has increased its Fed Funds rate by 125 bps (50 bps in May and 75 bps in June), which was more aggressive than expected, triggering further worries that the US economy will fall into a recession.

This is especially so as another 200 bps hike is expected in the second half of this year, according to MIDF Research. - FMT