KUALA LUMPUR: The ringgit will appreciate later this year, rising from RM4.70 currently to RM4.55 against the US dollar by end-2024, with narrowing interest rate differentials with the US and a relatively strong growth outlook supporting the currency, said BMI Research.
The ringgit has been on a broad weakening trend since the start of 2024 and touched multi-year support of RM4.80 against the US dollar on April 16.
While it has since regained some lost ground, the unit is down 2.5 per cent against the US dollar year-to-date, ranking it among the better performing currencies in Asia.
"However, as the exchange rate has remained largely unchanged since our previous update in April, we retain our forecast to touch RM4.55 against the greenback by end-2024 – implying that the ringgit will likely appreciate more substantially in Q4 2024," BMI said in a statement today.
The Fitch Solution's company also said the ringgit will strengthen by 3.3 per cent next year, reaching RM4.40 by end-2025, bolstered by further policy loosening worth 200 basis points, which will take the Federal Reserve (Fed) funds rate down to 3.00 per cent by December 2025. Meanwhile, BMI also expects Bank Negara Malaysia to remain on hold at 3.00 per cent through end-2025.
The latest Federal Open Market Committee (FOMC) meeting prompted BMI to revise its end-2024 Fed Funds rate forecast from 4.75 per cent to 5.00 per cent, with the loosening cycle now due to kick off in September (previously July). "This implies that narrowing yield differentials will be supportive of the ringgit, particularly if we are right in expecting BNM to leave its overnight policy rate on hold at 3.00 per cent through end-2024," BMI said in its note.
From a growth perspective, Malaysia's relatively strong real gross domestic product (GDP) growth outlook vis-à-vis the US will bode well for investor sentiment and provide a favourable backdrop for the ringgit.
"We expect real GDP growth to accelerate from 3.7 per cent in 2023 to 4.4 per cent and 4.5 per cent, in 2024 and 2025, respectively. "Meanwhile, we expect growth in the US to slow from 3.6 per cent in 2023 to 2.1 per cent and 1.4 per cent during the same period," said BMI. BMI said as a share of GDP, net FDI inflows into Malaysia have consistently surpassed that of its regional peers such as Philippines and Thailand.
More recently in May, Prime Minister Datuk Seri Anwar Ibrahim said he is seeking to attract RM500 billion in investments in the initial phase of the National Semiconductor Strategy, particularly in the water fabrication and manufacturing equipment aspects.
Additionally, at the 50th anniversary celebration of China-Malaysia diplomatic ties, Chinese Premier Li Qiang opened the possibility of connecting Malaysia's East Coast Rail Link to other Chinese-backed railway initiatives in Laos and Thailand.
"While little has been finalised as of June, we expect Malaysia's FDI to benefit from the improved regional connectivity should these plans come into fruition," BMI added.