KUALA LUMPUR: The ringgit is expected to regain its strength supported by the country’s economic fundamentals, although market sentiment could cause fluctuations in its value, according to United Overseas Bank (M) Bhd (UOB).
UOB economist Julia Goh said the ringgit was playing catch-up and there was lesser pressure on the ringgit.
She said the currency would likely average at 4.35 by mid-2017 before appreciating to around 4.30 by year-end.
The ringgit was quoted at 4.3472 against the US dollar yesterday. Year-to-date, the ringgit has appreciated 4.55% against the greenback.
Goh noted that domestic factors, such as the easing of the foreign selling of Malaysian Government Securities, trade and the sustained current account surplus, have also supported the ringgit’s gain.
“Foreign buying in domestic bonds is back. In April, foreign funds started accumulating domestic bonds to the 40% level after five months of selling since November 2016,” Goh said at a media briefing here yesterday.
She reckoned that foreign ownership of bonds may not go back to the high recorded previously.
A record RM26.2bil of local bonds were dumped by foreigners in March, bringing total foreign ownership to 38.5% currently from about 47% in November 2016.
The global bond market rout triggered by the “Trump Tantrum” in November 2016 saw Malaysia recording the largest amount of foreign outflows from its domestic debt securities on record at RM19.9bil.
Meanwhile, Goh said the Singapore dollar-ringgit cross rate could return to below the 3.00 level by year-end.
“The Singapore dollar is seen as a safe-haven currency for the region and a lot of funds will come in to support the Singapore dollar,” she said, adding that the rate for the Singapore dollar-ringgit was relatively expensive now.
Additionally, Goh expected Bank Negara to maintain the overnight policy rate unchanged at its monetary policy meeting this Friday.
“If Bank Negara sees that there is stronger domestic demand and sustained inflationary pressures, then it may consider raising rates, but we are not seeing that at the moment.
“Domestic demand is still resilient, but it is showing some signs of moderation partly because Bank Negara is projecting unemployment rate this year to be above 3.5%,” she said, adding that another trigger for a potential rate hike was the risk of a financial imbalance.
However, Goh said that risk had been abated because household debt had slowed to a growth of 5.4% last year.
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