KUALA LUMPUR: The ringgit is expected to rise against the US dollar this year, averaging at RM4.23 against the greenback but at a slower pace due to evolving US monetary policy, according to MIDF Amanah Investment Bank Bhd.
The investment bank said that while US monetary policy easing is expected to be more gradual than initially projected and interest rate differentials may remain wide, it believes the eventual narrowing will support emerging market currencies, including the ringgit.
"Malaysia’s growth fundamentals also remain supportive of ringgit strengthening given the continued surplus in terms of the balance of trade and current account. On the same note, we expect our MIDF Trade-Weighted Ringgit Index (TWRI) to increase towards 95.0 by year-end as we expect the ringgit to appreciate further against other currencies,” it said in a research note.
MIDF said the ringgit appreciated against the US dollar in February, increasing by 0.1 per cent month-on-month (m-o-m) to end at RM4.463 and up 0.2 per cent year-to-date.
It noted that the ringgit's recent decline was primarily due to capital outflows to the United States, fuelled by persistent interest rate differences. "With the US Federal Reserve (Fed) likely to maintain a cautious approach to rate cuts in 2025 and the potential for renewed US inflation due to a strong economy and job market, we anticipate continued pressure on the ringgit,” it said.
Further, the investment bank said the new US administration's tariff policies could exacerbate inflationary pressures, potentially altering market expectations regarding US interest rates.
"At the moment, we do not think it would derail our current view of one 25 basis points rate cut in the second half of 2025. Echoing Fed chairman Jerome Powell’s speech in the January 2025 Federal Open Market Committee meeting, we do not think that the central bank is in a hurry to cut rates again,” it stated.
MIDF noted that the US dollar index (DXY) weakened by 0.7 per cent m-o-m to 107.61 in February, marking the second month of weaker performance. - Bernama
