Economist Forecasts Ringgit To Reach RM4.45 Vs US Dollar By Year-end

KUALA LUMPUR, Jan 24 (Bernama) -- The ringgit is likely to trade sideways, with an end-of-year forecast of RM4.45 against the US dollar.

AmBank Group chief economist Firdaos Rosli believes the Malaysian economy has ample room to expand over the next 12 months, keeping the ringgit in a relatively favourable position against its peers. 

Additionally, he said an investment upcycle appears to be already underway, which could yield healthier growth and higher productivity later on, in contrast to the multiple headwinds confronting other major and regional economies. 

bootstrap slideshow

“As a result, we think the ringgit remains well supported by a healthy domestic outlook,” he said at the bank’s Macroeconomic Outlook briefing today.

On the monetary front, Bank Negara Malaysia’s (BNM) commitment to maintain its overnight policy rate (OPR) at a level it deems accommodative, combined with the US Federal Reserve’s (Fed) slower-than-previously-expected easing path, should keep yield differentials relatively tight. 

This scenario bodes well for potential ringgit gains, especially when factoring in valuation metrics. The ringgit remains undervalued on a real effective exchange rate (REER) basis and has yet to recapture its pre-pandemic value, he said.

bootstrap slideshow

“Even if we compare current levels to the historical average of around 3.80 per dollar (from the post-peg era in 2004/2005), there is still room for the ringgit to appreciate,” he said.

Another wild card that could bolster the currency is the possible conversion of export proceeds, he noted.

Foreign currency deposits have increased in line with the ringgit’s weakness, and any repatriation of those proceeds would provide additional support.

Firdaos said he expects BNM to keep the OPR steady through at least the first half of 2025 (1H 2025) given the current pause since raising its benchmark OPR to 3.00 per cent in May 2023. The current neutral aligns with BNM’s assessment that the prevailing monetary policy stance supports economic growth. 

“However, as global central banks proceed with monetary easing, we believe BNM will retain ample policy space to manoeuvre if downside risks to growth intensify. 

“Given this backdrop, the next rate move will likely be a cut rather than a hike, though this is unlikely to materialise before 3Q 2025,” he said.

On inflation, he said it is expected to remain contained in the near term amid easing production costs, as reflected by three consecutive months of producer deflation since September 2024.

However, inflationary pressures will likely rise gradually through 2025 as the high base effect dissipates and cost-push factors intensify.

Key upside risks include the anticipated implementation of RON95 subsidy rationalisation in mid-2025 and a potential hike in electricity tariff starting July 2025. RON95 and electricity accounting for 5.5 per cent and 2.7 per cent of the CPI weightage, respectively, he said. 

Nevertheless, the impact is expected to be manageable as the government has assured that subsidy rationalisation will only impact the top 15 per cent income group. 

“We project inflation to average between 2.5 per cent and 3.0 per cent in 2025, in line with the official projection range of 2.0 per cent to 3.5 per cent.

“Additional inflationary risks may stem from the potential US tariffs, which could increase import costs and further amplify price pressures,” he added.

As for the US dollar, Firdaos said it is poised for volatility in 2025 due to uncertainties related to US President Donald Trump, monetary policy, and geopolitical issues. 

“We expect the dollar to remain strong but recognise that certain factors could reverse its gains. Currently, the dollar mirrors its performance during the Trump 1.0 era, and it may remain elevated for a longer period this time,” he said.

The ongoing rate cuts by the Fed distinguish the current situation, yet concerns around Trump’s tariffs 2.0 will raise the likelihood of intensified trade conflicts and consequently strengthen the dollar through safe-haven demand. 

Another equally important key to the dollar’s strength is the prospect of rising US inflation and uncertainties surrounding the Fed’s easing path.

-- BERNAMA