Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on January 16, 2020

KUALA LUMPUR: Standard Chartered (StanChart) is expecting the ringgit to strengthen against the US dollar this year, to between 4.0 and 4.1, in line with its more bullish views on other emerging market, or EM, currencies in anticipation of a weaker greenback.

“We have turned more positive on the ringgit. We are looking at a recovery in the Malaysian ringgit over the next one year,” Divya Devesh (pic), head of Asean and South Asia FX research, told reporters here yesterday.

Three factors will be supporting EMs, whose currencies are mostly undervalued, according to Devesh. They are the stabilisation of global growth expectations, the fairly low or subdued inflation globally, and the increasing size of central banks’ balance sheets across the world.

In contrast, the bank has “turned more bearish on the US dollar”, which is now at a 20-year high in terms of valuation, Devesh said. The widening twin deficits in the US and the possibility of a US election surprise will be negative for the greenback, he said.

Domestically, Devesh said the ringgit’s recovery this year will be supported by continued improvement in its external balances. While external balances have improved, he said that ringgit has yet to rally to reflect this improvement. “Thus, we believe that this gap will close as we go through this year,” he added.

Additionally, he said foreign investors have been increasing its allocation to Malaysia, in particular on the fixed income side, which is positive for the local currency. At the time of writing, ringgit was trading at 4.0743 against the greenback.

 

Malaysia’s GDP seen at 4.5% this year; OPR to be kept steady

AS for Malaysia’s gross domestic product (GDP) growth, StanChart’s Asean and South Asia chief economist Edward Lee said it should come in at 4.5% this year, with private consumption remaining the main growth driver. The projection is lower than the government’s GDP growth target of 4.8%, but in line with World Bank and International Monetary Fund’s forecasts.

Lee said the projection is due to the bank’s expectation that the pace of spending may ease due to a high base and subdued domestic sentiment, and its observation of some early signs of softening in the labour market. Lee, however, stressed that the labour market remains “solid” at present.

The effects of these will be mitigated by an overall sentiment recovery, thanks to the resumption of infrastructure projects domestically, and external factors like an anticipated de-escalation of the US-China trade war, looser global monetary conditions, and a pickup in the electronics sector.

“We don’t think that any sitting president would want to go into an election year with a recession,” Lee said on the expected easing of tensions between the two largest economies of the world.

“There could still be some upside [catalyst to Malaysia’s economic growth]. If investors’ confidence returns [and] investments come back, we can certainly see Malaysia performing better than 4.5%,” said Lee.

As for the key interest rate, Lee said Bank Negara Malaysa (BNM) is expected to hold the overnight policy rate or OPR steady at 3% in 2020. “Given the improvements in the external environment, we expect BNM to adopt a wait-and-see stance,” he added.

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