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Ringgit to Outperform in 2024, Hitting 4.40-4.30 Level Against US Dollar by Year End, Affin Bank Says

The ringgit is expected to appreciate to the 4.30-4.40 level against the US dollar this year, from 4.60 at end-2023, amid the expectation of interest rate cuts in the US, according to Affin Bank Bhd.

“Most probably we will see a reversal in the second half of this year when the US Fed (Federal Reserve) normalises its rate cuts and major central banks in the regions keep their rates unchanged, and then we will see more capital inflows into the region,” said its group chief economist Alan Tan Chew Leong at the Macro and Market Outlook 2024 briefing on Tuesday.

“Some US economists are expecting more aggressive rate cuts by the US Fed from June onwards, but we expect the first rate cut by the US Fed to happen in September.

“We expect BNM [Bank Negara Malaysia] to keep the OPR [overnight policy rate] at 3% throughout 2024, so we expect the differential between the US rate and Malaysian rate to narrow, which will help the ringgit to improve,” he said.

Other factors that would strengthen the local currency include commendable economic growth driven by exports supported by diversified export markets, low inflation and the expectation of the government’s fiscal discipline narrowing the fiscal deficit to to 4.3% in 2024 from 5% in 2023, according to Tan.

Tan anticipates the Japanese yen and the ringgit, both of which were the worst performing currencies in Asia, to be outperformers this year with a notable turnaround.

The Japanese yen depreciated by 7% against the US dollar and the ringgit dropped 4.1% against the greenback.

“The economic fundamentals of these two countries are projected to be significantly stronger," he commented.

While he is expecting investment sentiment to improve, Tan also sees the likelihood of favourable assessments by sovereign rating agencies on Malaysia's current “stable” sovereign rating outlook.

In terms of gross domestic product (GDP), Tan said GDP growth of 4.5% in 2024, up from an estimated 4% in 2023, driven by recovery in exports due to higher demand for electrical and electronic products, strong household spending, and recovery in tourism-related activities.

“We believe the 4.5% GDP target [for Malaysia] is highly achievable. With the US economy holding up, and with China showing signs of further recovery, we think that the Asean region as a whole will continue to show strong GDP growth.

“The downside risk is more towards geopolitical tensions. At the moment, we do not expect a sharp escalation where it will cause global commodity prices to spike up sharply and cause supply disruption,” Tan added.

On the inflation rate, Tan’s forecast on consumer price index is in the range of around 3% to 3.5% in 2024.

“But with the increase in RON95 prices following [the] targeted fuel subsidy, inflation may start to pick up slightly in the second half of the year [to reflect the higher prices],” he added.

Source: The Edge Markets

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