Ringgit to rise on oil as removal of GST has little impact: CIMB

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KUALA LUMPUR (May 21): The ringgit will strengthen to 3.75 per dollar by the end of September as rising oil prices boost the economy, while the removal of the GST will have little negative impact, according to CIMB.

* Nation’s 10-year bond yield will fall to 4%, strategists including Ray Choy wrote in note Monday

* Replacement of GST with sales and services tax will result in shortfall in govt revenue of RM17.95 billion

* Still, higher oil prices and cuts to govt spending will limit the impact, and the fiscal deficit is estimated at 3.5% in 2018 vs earlier projection of 2.8%

* Government revenue may also get a boost from higher collection of corporate and other taxes as removal of GST boosts consumption

* Economic growth may take a hit from govt’s review of infrastructure projects but domestic consumption and accommodative monetary policy will help cushion the impact

* Ringgit is still cheap on an NEER basis, which would support exports and GDP growth

* Government will probably review infrastructure spending such as high-speed rail project to reflect Malaysia’s interests, rather than canceling them

* Institutional reforms such as probe into state fund 1MDB are positive and will be a catalyst for propelling Malaysian assets out of their historical trading ranges and valuations

* NOTE: USD/MYR rises 0.1% to 3.9760; 10-year yield climbs 5bps to 4.22%