KUALA LUMPUR: MIDF Research has revised downwards its ringgit outlook and sees the local currency trading at 4.10 to the US dollar by year-end as more risks emerge.
The research unit said this was a 2% decrease from its previous forecast of 4.00 to the US dollar. It also expects the ringgit to average at a higher rate of 4.12 this year compared with 4.05 previously.
MIDF Research cited that the major factors impacting the ringgit were the decision of Norway’s sovereign wealth fund (SWF) to reduce exposure to emerging market including Malaysia; the US-China trade conflict and the cut in the overnight policy rate.
“The decision of Norway’s SWF to reduce exposure to emerging market including Malaysia is expected to see a substantial outflow from the Malaysian bond market over time, putting pressure on the ringgit,” it said in its latest report.
It also pointed out the possible downgrade of the Malaysian bond market by FTSE Russell will continue to haunt ringgit until September, the deadline given.
“If the downgrade takes place, Malaysia would be excluded from the World Government Bond Index (WGBI) for the first time since 2007, hence further outflow from the domestic bond market could be seen, heightening chances for more ringgit depreciation,” it said.
MIDF Research also said while a trade deal between the United States and China is expected to provide a relief to the rest of the world, fears flare as the delicate trade talks could collapse.
US President Donald Trump’s latest threat to raise tariffs on US$200bil worth of Chinese goods to 25% from 10% effective tomorrow has escalated trade tensions.
“If the talks fail, it will further dampen global trade and investment activities including Malaysia’s and eventually weigh on growth. Weak exports demand is likely to narrow Malaysia’s current account surplus, contributing to ringgit weakness,” it said.
MIDF Research said the decision of the Monetary Policy Committee of Bank Negara to cut the overnight policy rate (OPR) by 25 basis points to 3% would also impact the ringgit.
“Lower interest rates tend to be unattractive for foreign investments, reducing the demand for and relative value of the currency. Given that other factors determining the value of ringgit such as political and policy stability are still in a flux, we believe that the OPR cut will result in further depreciation of ringgit,” it added.
However, it was not all doom and gloom despite all the downside risks to the ringgit.
MIDF Research expected a gradual pick-up in commodity prices particularly Brent crude oil, the better fiscal position of the Malaysian government, higher investment and domestic consumption activities likely resulting from the OPR cut and steady economy growth would be supportive to the ringgit.
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