Analyst: Ringgit likely to hit 4.20-4.40 against US dollar by year-end
In a recent exploration into the future of Malaysia’s currency, industry experts predict a strengthening scenario for the ringgit against the US dollar, projecting it may reach levels between 4.20 to 4.40 by the close of the year. This outlook is primarily attributed to the anticipated decision by the United States Federal Reserve to cut interest rates in response to a forecasted economic downturn within the country.
According to Tan Teng Boo, managing director of Capital Dynamics Asset Management Sdn Bhd, the potential adjustment in US interest rates is expected to not only bolster the ringgit but also positively impact other currencies, including the Thai baht, the Indonesian rupiah, and even those from developed economies like the Japanese yen. “It all depends on the US Fed and has nothing to do with our local economic policy,” Tan elucidated.
Diverse global developments such as the Red Sea crisis and the drought affecting the Panama Canal, which have contributed to heightened good prices, are also poised to influence the inflation rates in the US, potentially hastening the recession. Moreover, leading indicators like unemployment data suggest that the US job market’s tightness will continue to exert pressure on wages and inflation.
Current statistics show a troubling trend with both the Consumer Price Index (CPI) and the Producer Price Index (PPI) overshooting expectations. January witnessed a 0.3 percent rise in headline CPI on a month-on-month basis, with core CPI, which excludes food and energy components, climbing by 0.4 percent. Similarly, seasonally adjusted PPI for final demand saw a 0.3 percent increase, with core PPI, stripping out foods, energy, and trade prices, jumping by 0.6 percent.
Despite the ringgit’s challenges, including its nominal exchange rate, Tan believes the local currency is currently undervalued, attributing the broader fluctuations to the US’s fiscal practices and high debt levels. “So, you have the largest economy behaving irresponsibly, and of course, that affects the rest of the world and Malaysia being a developing country was affected,” he commented.
Regarding the performance of the ringgit, Tan argued against attributing its depreciation solely to the government’s policies, emphasizing a baseless and politically motivated criticism. Furthermore, he anticipates Bank Negara Malaysia (BNM) will maintain the overnight policy rate (OPR) steady through the year. “Interest rate differential will not forever determine currency rate,” Tan added, highlighting the significance of structural factors over the long term.
Looking ahead, Tan is optimistic about the global trade environment’s recovery, especially with a predicted strong rebound in China’s economy, which could significantly benefit Malaysia’s current account surplus. “A country is competitive when it is able to consistently experience current account surplus,” he concluded.
