KUALA LUMPUR (May 8): MIDF Research has revised downward its year-end forecast for the ringgit at RM4.10 against the US dollar, a two per cent decrease from RM4.00 previously.

The move it said, was due to a decision by Norway’s sovereign wealth fund (SWF) to reduce exposure to emerging market including Malaysia which is expected to see a substantial outflow from Malaysian bond market over time, putting pressure on ringgit.

“In addition, the possible downgrade of Malaysian bond market by FTSE Russell will continue to haunt ringgit until September 2019, the deadline given.

“If the downgrade takes place, Malaysia would be excluded from the World Government Bond Index (WGBI) for the first time since 2007, hence further outflow from the domestic bond market could be seen, heightening chances for more local note’s depreciation,” it said in its research note.

MIDF Research also said a trade deal between the US and China is expected to provide relief to the rest of the world.

“Donald Trump’s latest threat to raise tariffs on US$200 billion worth of Chinese goods to 25 per cent from 10 per cent effective this Friday has escalated trade tensions.

If the talks fail, it will further dampen global trade and investment activities including Malaysia’s and eventually weigh on growth.

The weak exports demand is likely to narrow Malaysia’s current account surplus, contributing to ringgit weakness, it said.

MIDF Research also said, despite all the downside risks to ringgit, a gradual pick-up in commodity prices particularly Brent crude oil, the better fiscal position of the Malaysian government, higher investment and domestic consumption activities likely from the overnight policy rate (OPR) cut and steady economic growth will be supportive to the ringgit.