Ringgit poised to be region’s top performer, says economist
Published on: Tuesday, January 09, 2024
By:
David Pillai, FMT
The ringgit, along with the Japanese yen, performed dismally in 2023 but both are expect to recover this year, says an economist. (File pic)
PETALING JAYA: There is optimism for the ringgit. Despite its poor performance against the US dollar and other major currencies last year, analysts expect it to reverse the downward trend in 2024.
In fact, Affin Hwang Investment Bank Bhd chief economist Alan Tan believes it will be the best-performing currency in the region this year.
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Tan said the ringgit could regain strength from RM4.40 to RM4.30 level against the US dollar by the end of 2024, up from RM4.60 at the end of 2023.
He expects the ringgit to start appreciating against the greenback once the US Federal Reserve begins to cut its policy rate.
“As a result of the improving economic fundamentals in Malaysia, we expect a sharp turnaround against the US dollar,” he said at the Affin Bank media briefing and release of its macro and market outlook report for 2024 today.
Tan also expects the Japanese yen to do better. The yen was the worst-performing currency in 2023, followed by the ringgit.
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“These two currencies will outperform (others) in 2024 due to stronger economic fundamentals,” he added.
Tan said the interest rate differential between the US and Malaysia is one of the factors leading to the local currency’s poor performance. He noted that the sharp interest rate hikes in the US had widened the spread between both countries.
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“That has led to capital outflows,” he said. However, he expects the US Fed to cut interest rate in September to 4.5% from 5.25% to 5.5% last year.
That will narrow the differential and it will help to improve sentiments for the ringgit, he added.
In its report, Affin Hwang Investment Bank cited Malaysia’s economic fundamentals, such as steady economic growth, a retained current account surplus, low inflation and the government’s strong fiscal discipline to consolidate its fiscal deficit position as the main contributors to the ringgit’s recovery.
The bank also said that as the ringgit’s appreciation will be market-determined, expectations of improving investor sentiment on the country’s economic fundamentals will support the currency.
It also expects favorable assessments for Malaysia by sovereign rating agencies.
The bank said Malaysia’s gross domestic product is expected to grow at a stronger rate of 4.5% in 2024, from 4% in 2023.
Its assessment is based on expectations of a recovery in exports due to higher demand for electrical and electronic products, in line with better prospects in global semiconductor sales.
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