KUALA LUMPUR – Ambank Research expects the ringgit to close the year 2023 in the range of 4.20-4.30 given the view that the US dollar had reached its peak.
In a 2023 Economic Outlook report, the research firm said the fundamentals of the ringgit are still strong, given the recovery in the tourism sector, which supports its strength.
As tourism sector gains some steam, Malaysia may see a narrower deficit in its services account, which could bode well for the ringgit.
“There is much more upside room as the number of tourists arrived in Malaysia was at 1.24 million during September 2022 while the average number of tourists during the last 10 years into Malaysia was 2.15 million persons,” Ambank Research said.
It said the fundamental aspects of the ringgit were also supported by the country’s economic growth, with domestic economic growth in 2023 anticipated to be around 4.5%, meaning the firm did not see any recession happening in Malaysia compared to recessions expected in other major economies.
Additionally, inflation in the country is at a manageable level vis-à-vis major economies while early pre-emptive moves made by Bank Negara Malaysia ensure that inflation is well contained without jeopardising economic growth.
“The final 25 basis points rate hike expected is unlikely to become a pronounced obstacle for labour market to continue improving such as policy normalisation rather than policy tightening here in Malaysia,” it said.
In conclusion, while US dollar weakness remains as the baseline view, the research firm did not think the greenback should trade at around or below 4.00 levels as that implies an overvaluation of the ringgit.
Meanwhile, on ringgit sovereign bond issuance, the firm said against the backdrop of RM99.1 billion of fiscal deficit expected in 2023 and the incoming maturity of RM80.9 billion, it sees Malaysian government securities and government investment issues issuance of RM175 billion to RM185 billion in 2023.
On the demand side, local institutional funds, which comprise pensions, insurance and other institutions, have the capacity to absorb given a combination of fund sizes exceeding RM1.5 trillion as per estimate.
“Support from domestic investors is adequate in our view, should interest from foreign funds remain subdued. However, we foresee interest from foreign funds to be restored given our view that the US dollar had already peaked as well as the US Federal Reserve is at the tail end of its rate hike cycle,” it said.
Moreover, the firm did not expect any unfavourable outcome as far as Malaysia’s sovereign credit ratings are concerned.
“We also noticed that from foreign investors’ perspective, there is no ongoing concern with respect to Malaysia’s sovereign credit quality as implied by the five-year USD CDS spread hovering below its long run average,” it said.
For ringgit corporate bond issuance, it is expected to be around RM100 million to RM110 billion, slightly below the five-year average of RM114 billion.
This expectation comes on the back of slower economic momentum anticipated in 2023, but at the same time, financing among corporates in the debt capital market will continue to persist.
“Infrastructure financing and regulatory-related funding will continue to support the primary bond market,” it added. – Bernama, January 17, 2023
