Ringgit likely to hit RM3.55 to US dollar

Fitch Solutions says the ringgit will draw strength from the sustained current account surplus next year.

PETALING JAYA: BMI has a bullish view on the ringgit which it forecast to strengthen further as interest-rate differential between the United States and Malaysia narrows with further rate cuts by the US Federal Reserve (Fed) in 2024 and 2025.

The political risk assessments and market analysis advisory expects the local unit to appreciate and hit RM3.55 against the greenback by end-2025, helped by resilient inflow of portfolio funds and the narrowing yield differentials, which will benefit the local unit.BMI expects the yield differential to narrow further in 2024 with the expectation the Fed will cut rates by an additional 75 basis points (bps) in the fourth quarter of 2024, after cutting by 50 bps last week, and on the assumption Bank Negara leaves its overnight policy rate on hold at 3% through end-2024.

“Looking beyond the six-month horizon, we forecast the ringgit to strengthen by 9% in 2025, reaching RM3.55/US dollar by end-2025. Accordingly, we have revised lower our forecast for the ringgit to average RM3.80/US dollar compared with RM4.48/US dollar previously.

“The primary driver will be further policy loosening of 125 bps in 2025, which will take the Fed’s federal funds rate down to 3% by year-end.

“In contrast, we expect the Bank Negara to remain on hold at 3% through end-2025,” BMI stated in a report.

Fitch Solutions added that the ringgit will draw strength from the sustained current account surplus next year, though it forecast a slight narrowing of the country’s gross domestic product from an anticipated 2.6% in 2024 to 2.4% in 2025.

“Central to this forecast is our expectation for economic activity to slow in the United States and mainland China in the second half of 2024 and we expect this weakness to feed through to Malaysia’s goods exports.

“The two economies account for more than 25% of Malaysia’s goods exports,” it pointed out.