KUALA LUMPUR: Bank Negara Malaysia's Financial Markets Committee (FMC) is optimistic about the ringgit's near-term outlook given the continued domestic market stability. 

Despite expectations of only one to two US Federal Reserve (Fed) rate cuts in 2024, FMC noted that the ringgit has remained resilient. 

It depreciated by only 2.6 per cent against the US dollar year-to-date, third best among 10 regional currencies.

"Since Feb 26, the ringgit is the only currency that has appreciated against the dollar, strengthening by 1.3 per cent. 

"This is a testament to the positive impact of the coordinated actions undertaken by the government and Bank Negara to encourage more consistent and timely inflows by government-linked companies (GLCs) and government-linked investment companies (GLICs).

"(FMC) members also acknowledged Bank Negara's presence in the foreign exchange market to ensure orderly conditions," FMC said in a statement after its meeting yesterday. 

The latest median Bloomberg forecast for the ringgit against the dollar stands at 4.65 for end-2024 and 4.45 for end-2025.

FMC members agreed that the ringgit's current performance does not reflect Malaysia's strong macroeconomic fundamentals such as robust gross domestic product growth and moderate inflation. 

"Members viewed that the ringgit has significant potential to appreciate and be among the top beneficiaries of US rate cuts, given the excessive movement during the rate hike cycle. 

"Members also noted that foreign sentiment remains positive and has improved further on the back of collective investor engagement efforts by the government, Bank Negara and industry players."

FMC said while headwinds remain, including geopolitical risks, uncertainty over the US rate hike trajectory, as well as timing and extent of further domestic subsidy rationalisation, it's members expressed confidence that continued domestic market stability and the concerted efforts of all parties involved would eventually result in a stronger performance for the ringgit.

It noted that the 10-year Malaysian Government Securities (MGS) yields have traded within a range of 3.70 per cent-4.00 per cent, while foreign holdings of Malaysian government bonds have been steady at around 22 per cent. 

Malaysian equities have also outperformed regional bourses with a gain of 9.4 per cent. 

Meanwhile, FMC acknowledged Malaysia's continued commitment to structural reforms. 

It said the diesel subsidy rationalisation was well received and served to combat leakages and reinforce the government's commitment to fiscal discipline. 

"Members also highlighted the importance of ensuring an effective communications strategy and implementation regarding the potential future rationalisation of RON95 petrol subsidies. 

"The meeting noted that the government's recent efforts to attract high quality investments, including renewable energy initiatives under the National Energy Transition Roadmap and data centre infrastructure projects, have been successful in attracting new foreign direct investment (FDI). 

"However, members also observed other shifts in FDI flows, particularly in the manufacturing sector, to other lower cost countries in the region," it said.

https://www.nst.com.my/business/economy/2024/06/1069469/ringgit-performance-not-reflective-malaysias-sound-fundamentals