We maintain our forecast for the ringgit against the USD at RM4.10–RM4.15 for 2021 and RM4.05–RM4.10 for 2022.

Over the long term, we continue to believe that the ringgit would benefit from a weaker USD and could touch RM4.15, which is stronger than the mid-point of its long-term trading range (RM3.80–RM4.50). The local currency should appreciate 0.2%–0.5% against the USD over the longer term.

• The Covid-19 pandemic uncertainties, coupled with the management, the speed of vaccination rollout, and the eventual reopening of the economy, external demand’s strength and domestic political challenges will impact the movement of the local currency going forward.

• We expect the short-term outlook for the ringgit to weaken significantly partly on concerns over Covid-19 cases and the management of the pandemic. The outbreak of this pandemic now defined as the “third wave”, lockdown measures and the EMCO in certain states are posing significant challenges to the economy and political space.

• The effects of these challenges to the economy and political outlook over the short term are also seen to have spilled over into the social environment. It will certainly weigh on the ringgit over the coming months although the government has rolled out another RM150 billion under Pemulih, bringing the total stimulus to RM530 billion or 37% of GDP.

• Besides, the ringgit will need to cope with periodic appreciation of the USD. Upside risks on the USD remain, as these will be driven by positive news from the economic data that will influence the tone of the US Fed Reserve in relation to its tapering and potential rate hikes.

• Also, the ringgit will be influenced by movements in the global crude oil price i.e. Brent, moving forward.

• We maintain our 2021 GDP projection at 4.0%–4.5%, with the downside at 3.0%, reflecting a much weaker recovery from the 5.6% contraction in 2020 due to a much weaker private consumption and investment outlook.

• On the OPR outlook, our base case suggests that BNM will likely keep the policy rate unchanged at 1.75%.

• However, there are possibilities for the government to raise the debt limit from 60% to as high as 65% to fund higher counter-cyclical spending. Under such circumstances, a cut to the OPR by 25 basis points (bps) to 1.5% could take place.

• We retain our forecast for the ringgit against the USD at RM4.15 (from RM4.10 previously) for 2021 and for 2022, our average forecast is RM4.10 (from RM4.05/USD previously).

• Over the long term, we continue to believe that the ringgit would benefit from a weaker USD and could touch RM4.15, which is stronger than the mid-point of its long-term trading range of between RM3.80 and RM4.50. The local currency should appreciate between 0.2% and 0.5% against the USD over the longer term.

Source: AmInvest Research - 21 Jul 2021