Goldman Sachs sees scope for ringgit weakness after May election

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KUALA LUMPUR (April 19): If the ruling coalition wins Malaysia’s general elections, there’s likely to be continuity in economic policies with investors focusing on infrastructure projects and policies encouraging foreign direct investment, Goldman Sachs economists including Goohoon Kwon wrote in note Thursday.

* If the ruling coalition loses, significant fiscal policy implications may arise. The consumption tax abolition proposed by the opposition could lead to a drop in revenue and the re- introduction of oil subsidies would boost government spending

* Key drivers for Malaysian currency swings before and after the elections could be capital flows, as indicated by shifts in the net foreign assets of Malaysian banks 

* “While we do not envisage any material impact of election outcomes on monetary policy in the near term, should higher inflation arise from minimum wage hikes and/or higher budget deficits, this could trigger an earlier-than-expected rate hike,” the economists wrote

* Bank expects BNM to maintain policy for the rest of 2018 and deliver one 25bps hike by mid-2019

* NOTE: USD/MYR steady at 3.8900; ringgit has dropped 0.7% this month with market being cautious ahead of the May 9 elections