AmBank Group forecasts ringgit to appreciate further to RM4.5 by year-end

KUALA LUMPUR: AmBank Economic Research is forecasting the ringgit to appreciate further to around RM4.5 by the year-end against the US dollar due to a combination of factors, including the potential narrowing interest rate differentials between the currencies which is more beneficial to the local unit.

"Nevertheless, actual USD/MYR has moved below these levels (last week at 4.685). Again, we repeat that our model already suggests that the current fair value of USD/MYR is about 4.50/60,” it said in a research note today.

It also emphasised that Malaysia’s economic fundamentals remain solid, as the ringgit opened higher at 4.67 versus the greenback today from yesterday’s closing of 4.68.

Aiding the sentiment for the local unit and continuing the advantageous re-positioning of the currency in the short term is Bank Negara Malaysia’s (BNM) stable and consistent monetary policy direction which pacifies the market.

Additionally, the United States Federal Reserve (Fed) is anticipated to cut the Federal Fund Rate by the second or third quarter of this year.

No less important were coordinated efforts by the central bank to boost inflows from abroad.

The research house highlighted that the weakening of the US Dollar Index and the undervaluation of the ringgit have spurred forex conversions into the local currency, as evidenced by the reversal in forex foreign currency deposits compared to total deposits.

AmBank Group pointed out that BNM has maintained the overnight policy rate (OPR) at 3.0 per cent, and anticipates that the central bank will maintain OPR at the current level throughout this year despite the ongoing supply-side interventions.

"Malaysia’s economic fundamentals remain solid and far from a recession, unlike in advanced economies; the expected smaller interest rate differentials and the Fed’s clear signal of an impending rate cut are positive on the ringgit.

"We maintain our end-year forecast of 4.50 with a possible downside of 4.60 per dollar,” it added. - Bernama