KUALA LUMPUR, Jan 8 — MIDF Amanah Investment Bhd (MIDF Research) expects the ringgit to appreciate to RM4.20 against the US dollar by end-2024, benefitting from the reversal of fund flows going back into the emerging markets.
The reversal of fund flows would be driven by the expectations of narrowing interest rate differentials as the United States (US) Federal Reserve (US Fed) is expected to start cutting the interest rate, with Bank Negara Malaysia keeping the overnight policy rate at 3.0 per cent.
“The ringgit and other regional currencies will benefit from the reversal of fund flows,” it said in a note.
MIDF Research added that as China’s economy recovers, the ringgit would also be supported by the more upbeat regional trade performance.
Conversely, several factors could weigh down on the ringgit performance, namely possible recession risk in the US and continued weakness in global trade and manufacturing activities.
To recap, 2023 was a challenging year for the ringgit as the local note touched a new low since the Asian financial crisis, closing at RM4.794 on October 23, 2023.
The ringgit exchange rate against the Singapore dollar also weakened and closed at a historical low of RM3.527 on December 18, 2023.
“The ringgit depreciation was mainly due to external factors, including the delayed pivot by the US Fed, which hiked further by an additional 100 basis points (bps) in 2023.
“The cumulative hikes of 525 bps since March 2022 make the recent tightening cycle the most aggressive rate increase since 1980,” it said.
Apart from the continued hawkishness and higher-for-longer signal by the US Fed, the weaker-than-expected recovery in China’s economy also weighed down on the ringgit performance.
“As a result, despite the positive domestic economic fundamentals, the ringgit returned to a depreciating trend from the peak RM4.244 at the end of January 2023,” MIDF Research said.
Only in the final two months did the ringgit appreciate against the US dollar, but it still ended the year 4.1 per cent weaker than at the end of 2022.
— Bernama
