KUALA LUMPUR (July 2): MIDF Research is optimistic about the ringgit strengthening to approximately 4.43 versus the greenback by year end, while Maybank Investment Bank remains cautious, expecting the US dollar's strength to keep the local currency around 4.70-4.75 levels until some potential relief later in 2024.

On Tuesday, MIDF Research said the ringgit will continue strengthening for the rest of the year after outperforming regional currencies in the first half of 2024.

The research firm noted that despite a slight depreciation of 0.2% in June, the ringgit appreciated on average by 0.1% for the first six months of the year.

It cited the MIDF Trade-Weighted Ringgit Index (TWRI) increasing by 0.2% to 86.25, indicating the ringgit’s strength against Malaysia’s trading partners' currencies.

MIDF anticipates further appreciation of the ringgit in the latter part of 2024, expecting the local note to close the year stronger at approximately RM4.43 (end-2023: RM4.59).

"We expect the MIDF TWRI will continue to reflect a broad appreciation of the ringgit," said MIDF, projecting the index to end the year at 91.50.

However, MIDF cautioned that external factors such as weaker growth in China and the US or geopolitical tensions may impact this outlook.

In contrast, Maybank Investment Bank maintains a more cautious view of the USDMYR, acknowledging near-term support for the USD and higher US Treasury yield levels.

The research house expects USD strength to persist into the third quarter, putting pressure on emerging market currencies, including the ringgit.

This pressure should ease by the end of 2024, with some relief expected, it added.

"Assuming an improvement in growth outlook, fiscal position, and a stable political environment, we believe it is still generally MYR positive into year end," said Maybank.

Overall, Maybank expects the ringgit to be range-bound at around 4.70-4.75 levels in the near term, with its baseline view of the USDMYR remaining in place by the end of the third and fourth quarters of 2024.

The research firm forecast Malaysia's gross domestic product growth at 4.7% for 2024 and 5.1% for 2025, upgraded from previous estimates reflecting robust private and public investments.

Headline inflation increased to 2.0% in May 2024, primarily due to the targeted diesel subsidy rationalisation that began in June. However, the impact of this on overall inflation is expected to be minimal, according to Maybank.

Bank Negara Malaysia (BNM) held the overnight policy rate at 3% for the sixth consecutive monetary policy committee meeting in May.

Maybank noted that coordinated actions between BNM and the Ministry of Finance have helped stabilise the ringgit, which improved to 4.6775 on May 16.

Domestic economic fundamentals remain strong, supported by a rebound in exports and imports, according to the research house.

Looking ahead, Maybank highlighted several risks, including the potential exacerbation of weakness in China’s recovery, delays in the Fed's easing trajectory, and geopolitical tensions.

It also mentioned domestic risks, such as the impact of the new Account 3 from the Employees Provident Fund, which allows withdrawals for any purpose, potentially triggering demand-pull inflation.

https://www.theedgemarkets.com/node/717527