KUALA LUMPUR: BMI, a Fitch Solutions company, expects ringgit to continue to strengthen in the second half of 2024 and early 2025, reaching RM4.40 against the US dollar by end-2025.
"The key driver will be further policy loosening worth 150 basis points (bps), which will take the United States Federal Reserve (Fed) funds rate down to 3.00 per cent by December 2025.
"But other factors will also provide underlying support to the ringgit,” it said in a statement today.
BMI expects the spread between policy rates and bond yields across the US and Malaysia to remain stable.
At its March meeting, the Fed appeared more dovish than expected. Fed officials believed a 75 bps cut this year will be appropriate despite raising both its inflation and growth forecasts.
"By contrast, we maintain the view that the Fed will cut its funds rate by 100 bps this year to 4.50 per cent.
"This suggests that narrowing yield differentials will bode well for the ringgit particularly if we are right in expecting Bank Negara Malaysia to leave its overnight policy rate on hold at 3.00 per cent through 2024,” it said.
On Malaysia’s external position, BMI projected it to strengthen in 2024.
"Our commodities team forecasts that oil prices will average at US$85.00 per barrel in 2024, a touch above the US$82.18 per barrel in 2023.
"This will help support Malaysia’s exports, given that oil accounts for nearly 20 per cent of total outbound shipments,” it said.
Additionally, BMI believed that services exports would continue to pick up pace.
The latest figures from the tourism ministry showed that total tourist arrivals in 2023 amounted to 20.1 million. While this surpassed the government’s upwardly revised target of 19.0 million, it remains about 77 per cent of pre-pandemic levels, it said.
Nevertheless, BMI expects the recently implemented 30-day visa-free entry for Indian and Chinese
tourists will help achieve the government’s target of 27.3 million tourist arrivals this year, it added.
"All told, this feeds into our forecast for Malaysia’s current account surplus to widen from 1.2 per cent of gross domestic product (GDP) in 2023 to 2.6 per cent in 2024,” it explained.
Moreover, BMI expects the resilient foreign direct investment (FDI) inflows will continue to be supportive of the ringgit.
Malaysia boasts bright long-term economic prospects, aided by a rapidly growing working-age population, which will allow it to remain an attractive destination for foreign investment over the coming years, it said.
"As a share of GDP, net FDI inflows into Malaysia have consistently surpassed that of its regional peers such as the Philippines and Thailand,” it added. - Bernama
