Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on December 13, 2017

KUALA LUMPUR: The ringgit remains one of the most undervalued currencies in the region, according to Nomura Global Markets Research.

“Any increase in commodity prices is likely to be positive for [the ringgit],” said Craig Chan, global head of emerging markets strategy, in a conference call yesterday.

He added that “every single model” used by the research house consistently shows that the ringgit, which touched a one-year low of RM4.06 against the US dollar last Monday, is still undervalued.

Nomura predicts that the ringgit will continue to appreciate marginally to 4.02 against the US dollar in the second quarter of 2018.

Unlike most other Southeast Asian nations, an increase in oil prices will be positive for Malaysia as a net exporter of oil and gas, said Brian Tan, Nomura’s economist for Southeast Asia.

He added that the nation’s gross domestic product (GDP) is expected to remain solid in 2018 even as it grows at a slower forecast rate of 5.5% compared with an expected 5.8% this year.

The strong recovery in exports is expected to spill over into domestic demand, Tan said, opening the window for the central bank to raise its overnight policy rate by 25 basis points to 3.25 in January.

“We don’t expect more than one rate hike, partly because we expect the general election to get called between March and May [2018],” he said.

While fiscal policy is expected to be expansionary in the first half of 2018 (1H18) on the back of upcoming elections, Nomura foresees belt-tightening measures to rein in the budget deficit.

If the current government remains in power, it is likely to launch significant fiscal tightening in 2H18 to meet its full-year fiscal deficit target of 2.8%, Tan opined.

Nomura expects the budget deficit to swell to 6% of GDP in 1H18.

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