Ringgit takes Malaysia GDP, oil cues as MARC sees four US rate hikes

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KUALA LUMPUR (March 6): The ringgit is seen hovering between 3.8000 and 3.9000 against the US dollar in 2018, according to Malaysian Rating Corp Bhd's (MARC) base-case forecast. MARC said the ringgit's performance hinges on Malaysia's economic outlook, crude oil prices and the pace of US interest rate hikes.

MARC chief economist Zahidi Alias said the Malaysian economy, as measured by the gross domestic product (GDP), could expand 5.3% in 2018 from a year earlier, largely supported by resilient private consumption spending.

"The outlook for the economy remains commendable for the year with the strengthening of domestic demand and strong external support, while a robust global trade will minimise external vulnerability, despite negative repercussions from trade protection.

"I think the strengthening of the ringgit is very much dependant on the prospects of the (Malaysian) economy, especially in terms of oil prices. We assume oil price to average at US$62 to US$63 per barrel this year," Zahidi said today at a press briefing on the Malaysian economic and sectoral outlook.

However, Zahidi said the performance of the ringgit falls back on the US economic performance, which offers clues on the pace of interest rate hikes there. He said MARC is pricing in four US rate hikes this year.

For Malaysia, Zahidi said MARC expects a net capital inflow this year, supported by comfortable crude oil prices, further strengthening of the ringgit, and anticipation of a second interest rate hike by Bank Negara Malaysia. He said a second hike in the overnight policy rate this year is possible, if the country's headline GDP growth exceeds 5.5%.

According to Bank Negara, Malaysia's 2017 GDP grew 5.9% on year, compared with 2016's GDP expansion at 4.2%. 

In currency markets today, the ringgit was traded at 3.9023 against the US dollar at 12:41pm. Over the last one year, the exchange rate was between 3.8663 and 4.4618.