KUALA LUMPUR: There is room for the ringgit to strengthen against the greenback by end-2022 due to domestic economic recovery and strong prices of commodities’ exports, although further ringgit depreciation is expected in the short term, according to foreign exchange specialists and economists.

       CIMB Group Holdings Bhd group head of treasury and markets Chu Kok Wei said the group’s house view is RM4.20 against the US dollar, for end-2022.

       ALSO READ: Ringgit slides against greenback on global economic outlook

       “Our year-end forecast for the ringgit is stronger. The aggressive rate hike expectations of the United States Federal Reserve (Fed) carry the risk of a harder landing, leading to a possible significant economic slowdown sometime in 18 to 24 months,” he told StarBiz.

       “In the event of a soft landing, global recovery should be more synchronised after the Ukraine conflict and easing of supply chain disruptions, while the economic recovery for Malaysia would also be stronger, hence the stronger ringgit outlook.

       “Strong commodity prices and current account surpluses would also be beneficial for the ringgit,” explained Chu.

       CIMB Group Holdings Bhd group head of treasury and markets Chu Kok Wei said the group’s house view is RM4.20 against the US dollar, for end-2022.

       United Overseas Bank Research senior foreign exchange strategist Peter Chia said despite the weakness in the ringgit, Malaysia’s fundamentals remain strong, with a positive growth outlook this year supported by the transition to endemicity, reopening of international borders and further normalisation of domestic demand.

       “Prospects for employment and wages have improved,” he noted.

       Chia said the ringgit is facing a decline, alongside other Asia currencies, against the US dollar due to the Fed’s increasingly hawkish signals.

       “The Fed is set to deliver a larger-than-usual 50-basis-point rate hike in its May meeting and may soon announce further details on its plans to reduce its balance sheet. The recent weakness in the yuan may have also weighed on the ringgit,” Chia told StarBiz.

       ALSO READ: Recession unlikely for now

       MIDF Research economist Zafri Zulkeffeli said the research unit’s year-end target for the ringgit is RM4.15, from an initial forecast of RM4.09, while the average rate for 2022 is RM4.25.

       He noted that fundamentally, the ringgit has more room to strengthen due to positive developments in domestic demand amidst the reopening of domestic economic activities, recovery in labour market and stable inflationary pressure.

       Zafri pointed out that the country’s external trade performances remain on an uptrend particularly via manufacturing, agriculture and mining products.

       “With the elevated global commodity prices, Malaysia stands to benefit more, given that the country is a net exporter for palm oil, crude petroleum and liquefied natural gas,” he told StarBiz.

       MIDF Research has forecast Malaysia’s gross domestic product (GDP) growth for 2022 to hit 6%.

       “Even the International Monetary Fund (IMF) has forecast Malaysia’s economy to grow by 5.6% this year. In comparison, the IMF revised downwards global growth by 1.3%, to 3.6% for 2022,” said Zafri.

       CLICK TO ENLARGE

       He said the ringgit may depreciate further to RM4.40 against the US dollar mainly due to sentiment-play amid the faster tightening of the Fed’s monetary policy. “We view the current trend as US dollar strengthening rather than ringgit weakening.”

       Chu also said the US dollar may strengthen a bit more from now, mainly due to expectations of aggressive rate hikes by the Fed.

       “Once the hikes start to happen over the next few months, perhaps in 50 basis points steps, we expect US dollar strength to normalise,” he said.

       Chu added that while it is understandable many Malaysians look at the US and Singapore dollar, both of which are driven mainly by the policy actions of the Fed and Monetary Authority of Singapore (MAS), the ringgit’s performance is a lot more mixed “when we look at a wider basket of currencies.”

       He noted that year-to-date, the euro has weakened against the ringgit from 4.72 to 4.66, along with the British pound’s decline from 5.63 to 5.55 and the yen’s plunge from 3.62 to 3.40.

       “One of the economic challenges that we face globally is the diverging speed of monetary normalisation. Individual currency performance is likely to respond to specific country policies.

       “As we focus on an increasingly hawkish Fed, we also suddenly have the Chinese central bank embarking on easier policy to support the economy from domestic Covid-19 challenges.

       “The ringgit’s recent weakness is also correlated to some extent with the weaker yuan,” explained Chu.

       Meanwhile, Moody’s Analytics economist Denise Cheok said the ringgit will likely depreciate against major currencies such as the US dollar in the short term.

       “The Singapore dollar will also likely grow stronger against the ringgit due to tighter monetary policy by the MAS to mitigate imported inflation.

       “However, high prices of commodities exported by Malaysia such as crude palm oil and crude oil could provide some strength to the ringgit,” she said.

       UOB Research senior economist (Malaysia) Julia Goh also noted that a spike in global crude oil prices is a double-edged sword for Malaysia’s fiscal position as higher oil revenues are countered by rising fuel subsidies, while Malaysia’s high dependence on imports also dilutes the positive spillover effect of higher commodity prices.

       “In the first quarter of 2022, exports gained 22.2% (fourth quarter 2021: 29% growth) while imports advanced 25.2% (fourth quarter 2021: 29.6% growth).

       “Higher imports over exports led to a narrower trade surplus of RM65.1bil (fourth quarter 2021: RM76.2bil trade surplus),” she said.

       Meanwhile, MIDF Research is maintaining its forecast of one rate hike of 25 basis points on the overnight policy rate (OPR) this year.

       “We believe the central bank is more concerned about economic growth stability than the ringgit trend, when comes to monetary decision,” said Zafri.

       Cheok also said the central bank will likely prioritise the economy’s return to pre-pandemic levels over capital outflows and currency depreciation.

       “Inflation in Malaysia remains relatively moderate compared to the rest of the region. We still expect Bank Negara to hike rates only in the third quarter of the year,” she said.

       Chu expects the central bank to remain vigilant on financial market volatility.

       “The flexible exchange rate is also a shock absorber mechanism for the economy to adjust towards the endemic phase.

       “We expect the OPR to be largely determined by domestic economic conditions and needs, instead of reacting to foreign exchange volatility,” he said.