KUALA LUMPUR: The ringgit is on a catch-up game following a long period of being grossly undervalued and one of most underperforming currencies, according to the Malaysian Institute of Economic Research (MIER).
The firm said both the nominal effective exchange rate (NEER) and real effective exchange rate (REER) suggest the fair value of the ringgit theoretically is at 3.90 against the US dollar.
"Other approaches point to a level between 3.90 to 4.20 to the US dollar. Recent appreciation of the ringgit against the dollar is expected to continue in 2024," it said in its monthly economic review report today.
MIER said the ringgit stands to benefit from more than just US monetary policy.
It added that domestic factors, such as fiscal reforms aimed at reducing the budget deficit and strong gross domestic product (GDP) growth expected to reach if not exceed five per cent in 2024, could also support the currency.
"Besides, solid foreign direct investment, repatriation of funds from government-linked companies, and a sustained current account surplus driven by robust exports in electronics, tourism, and services further strengthen the outlook for the ringgit," it said.
MIER noted that foreign investment into Malaysia's equity and bond markets is another positive factor for the currency.
The firm said after experiencing an outflow of RM823.6 million earlier in the year, the equities market saw an inflow of RM1.3 billion in July.
In the first half of 2024, foreign inflows into the bond market reached RM874.6 million.
MIER also noted that by the end of 2024, the ringgit could appreciate to 4.20-4.25 from 4.59 at the end of 2023.
However, it said the prolonged strength of the US dollar may keep the ringgit's average exchange rate around 4.60-4.64 against the dollar, compared to 4.56 in 2023.