Ringgit watchers predict rebound on strong Malaysia fundamentals

Slowing exports and tepid inflation have raised expectations that policy makers will need to consider adding to May

KUALA LUMPUR: Malaysia’s ringgit is poised to rebound as the sell-off fueled by fears of a capital outflow eases and focus returns to the economy’s solid fundamentals, according to some currency watchers in the onshore market.

FTSE Russell’s decision to consider dropping Malaysia from its bond index is “slightly surprising” as market accessibility has improved due to the central bank’s measures, including its dynamic hedging program, says Chu Kok Wei, Group Treasurer at CIMB Group in Kuala Lumpur.

Genuine investments into Malaysia are free from regulatory constraints and eligible for hedging. “However, engagement at finer details is always useful to make the process clearer, and reduce operational impediments,” Chu says.

USD/MYR may drop to 4.0900-4.1100 and 10-year govt yield could trade around 3.85%-3.95% levels if FTSE retains Malaysia in its bond index

NOTE: USD/MYR falls 0.2% on Friday to 4.1325, snapping a three-day advance during which it rose 0.8%. Pair is headed for its fourth straight weekly gain, the longest run since October. Malaysia’s 10-year yield +1bp to 3.91%, has climbed 13bps this week.

USD/MYR is expected to drop to at least 4.08 by end-June, supported by the nation’s current-account surplus, GDP growth of more than 4.5% and a contained fiscal deficit, says Kwan Lee, President of Financial Markets of Malaysia.

Demand for MYR govt bonds remains ample, as reflected in heavy oversubscription of new issuances with the nation’s savings rate of more than 28% of GDP.

Local bond market is highly accessible, as evidenced by foreign holdings of 23% and there’s substantial FX hedging flexibility. - Bloomberg