‘Ringgit to peak to 3.80 level by year-end’
Affin Hwang says this will be fuelled by solid commodity prices, monetary policy
THE ringgit is expected to strengthen to around 3.80 against the US dollar in the fourth quarter of this year, which is seven per cent higher than its current level.
Affin Hwang Investment Bank Bhd head of research and chief economist Alan Tan Chew Leong said this would be fuelled by stronger commodity prices and the normalisation of monetary policy in the second half of the year.
“We think the economic fundamentals will support the ringgit towards the end of the year.
“While we think the local currency will remain volatile in the short term, it will strengthen in the fourth quarter and rise towards 3.80 by the end of this year,” he said at the MalaysiaChina Chamber of Commerce briefing on the business outlook post-14th General Election on Saturday.
Tan said Bank Negara Malaysia’s measures to stabilise the ringgit, such as the conversion of 75 per cent of export proceeds held in foreign currency into the local unit, would boost the ringgit’s value as well as fund flows into the country.
Affin Hwang’s ringgit outlook is similar to Prime Minister Tun Dr Mahathir Mohamad’s fair value assessment of the local unit, which is also the same as the peg he set in 1998 during the Asian financial crisis.
At 6pm on Friday, the ringgit stood at 4.0600/0630 against the US dollar from 4.0620/0650 on Thursday.
Affin Hwang also expects fiscal deficit to narrow to between 2.8 and 3.0 per cent of gross domestic product (GDP) this year from 3.0 per cent projected last year.
Tan said this would be supported by higher oil prices of around US$70 (RM284) per barrel this year from US$52 previously.
On inflation, Tan said it would strengthen to between 2.5 and 3.0 per cent this year, compared with the official forecast of 2.0 to 3.0 per cent.
Affin Hwang is more modest about the country’s GDP than Bank Negara’s forecast of 5.5 to 6.0 per cent.
“We are projecting real GDP growth at 5.3 per cent this year, compared with the official forecast of 5.5 to 5.6 per cent (5.9 per cent last year). The risk is at an unexpected slowdown in the external environment,” he said, referring to the United States-China trade war.
He, however, said it did not expect the trade war to reach the full-blown level as both countries realised it would only hurt the global economy, which could trigger a catastrophic downturn.
“I believe no one wants to see it happen,” he said, adding that the current situation shows the market is not giving a very negative reaction.
Tan expects the situation to be more of a tactical ploy by US President Donald Trump.
“But if it’s out of control, it’s possible to trigger the ‘full blown’ impact and will affect other world economies.”