KUALA LUMPUR: The Malaysian ringgit is set for its best quarter since 1973, with a likely refrain by the central bank from cutting interest rates seen to extend the currency’s rally.
The ringgit has risen more than 12% against the greenback so far this quarter, making it the best performing emerging market currency. Narrowing rate differentials with the United States, improving trade performance and attractive asset valuations may help the ringgit strengthen further, analysts said.
Robust economic growth and a potential pick-up in consumer prices if the government proceeds to remove some fuel subsidies may keep Bank Negara on hold into 2025 even as other central banks start to lower borrowing costs.
Foreign investor flows and further conversion of foreign currency deposits will also support the ringgit.
“Malaysia’s current account surplus, neutral central bank stance and stable fundamentals may help with further gains in light of dollar weakness,” said Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corp.
“This is particularly so if markets expect more rate cuts by the United States, reducing yield differentials between the United States and Malaysia.”
The ringgit has been on a tear since April after a rebound in exports and efforts by the central bank to encourage state-linked firms to repatriate overseas investment income.
The rally picked up steam this quarter as investors bet on South-East Asian winners amid the prospect of policy easing by the Federal Reserve.
Global funds have poured a cumulative US$2.5bil into the nation’s bonds in July and August, and bought US$1.2bil of local equities since end-June. — Bloomberg
