KUALA LUMPUR – Economists are projecting a better outlook for the ringgit in the second quarter (Q2) of 2023 amid the country’s relatively resilient economic outlook.
The economy’s continuous growth momentum will, in turn, support investor confidence and attract foreign capital inflows, said Kenanga Investment Bank Bhd.
The investment bank also saw no apparent risk from the upcoming state elections.
“The weakening of the US dollar due to the recalibration of market expectations for a more dovish Federal Reserve, coupled with Malaysia’s stable political environment and a more resilient economic outlook, may help to support the local note to trade stronger below the 4.40 level by the end of Q2,” it said in its Economic Viewpoint.
At this current juncture, it is retaining Q2 and end-2023 forecasts at 4.35 and 4.11, respectively.
However, rising tensions between the United States and China and the ongoing Russia-Ukraine conflict are some of the risks that could pose headwinds to the ringgit.
“To note, the current banking turmoil in the US and Europe has yet to result in a sharp increase in risk aversion, as evidenced by the Chicago Board Options Exchange’s Volatility Index.
“Despite concerns about potential risks, some investors are still investing in risk-on assets, particularly in emerging markets. This may be attributed to the promising long-term growth potential of emerging markets that outweigh the short-term risks,” it added.
Nevertheless, Kenangan Investment Bank said it is important to keep in mind that the situation remains dynamic, with the ongoing regional banking crisis in the US posing a possible threat of another round of financial turbulence.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist and social finance Mohd Afzanizam Abdul Rashid told Bernama that a domestic rate hike could help to drive the ringgit’s strength in Q2.
He also believes a 4.35 range is achievable by the end of the quarter.
The ringgit last hit the level in February, with 4.52, hit on March 8, being the weakest rate for the year so far.
At present, he said the Fed seems to be more guarded in its monetary tightening cycle.
Afzanizam said the Fed might deliver another 25 basis points hike in May, increasing the Fed Fund Rate terminal rate to 5.25% and would stop there for a while.
He said incoming data would be crucial to shaping the Federal Open Market Committee members’ future views.
“We believe the US economy would start to moderate further in Q2 as the effect of past interest rate hikes, totalling 475 basis points since early last year, would have started to impact the economy.
“When borrowing costs are high, businesses tend to be mindful in their capital expenditure decision as the hurdle rate or internal rate of return, which is the common tool for performing due diligence, has become stricter.
“Similarly, households would be taken aback when rates are high. This will impede them from purchasing big-ticket items. Such dynamics would have a repercussion on other sectors, namely real estate, banks, professionals and building materials to name a few,” he noted. – Bernama, March 31, 2023
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