Ringgit expected to approach 4.40 by year-end

KUALA LUMPUR: Kenanga Investment Bank Bhd (Kenanga IB) forecasts that the ringgit will trade close to the 4.40 level by the end of the year, due to indications that the US Federal Reserve (Fed) may only reduce rates by 50-75 basis points this year.

According to Bernama, Kenanga IB stated that this sentiment could lead to a rebound in the US dollar in the fourth quarter of 2024.

“We remain confident about the ringgit’s performance since last year. We project it will reach 4.25 by the end of 2024, driven by expectations of weak US economic growth and further Fed rate cuts,” the bank said.

The announcement of key US employment data last Friday has continued to create uncertainty in the market about whether the Fed will cut rates by 25 or 50 basis points in September, with the probability of a 50 basis point cut reduced to 30.0 percent.

Meanwhile, Kenanga IB expects Bank Negara Malaysia (BNM) to maintain its current monetary policy for the next 12-15 months, given the weak inflation and strong economic growth.

“However, there are still risks of inflation rising, potentially due to changes in government policy and external risks, especially geopolitical tensions.

“Nevertheless, BNM is expected to remain vigilant and be prepared to respond if necessary,” it added.

The ringgit experienced a surge in August, becoming the best-performing currency globally with a significant 6.0 percent increase, supported by a weakening US dollar as the Fed signaled a possible rate cut in September amidst easing inflation and a weakening labor market.

The local currency continues to benefit from the strong growth prospects of the Malaysian economy, stable monetary policy, fiscal reforms, and political stability, according to Kenanga IB.