Ringgit set to stabilise at 4.54-4.58 against US dollar by year-end – OCBC Bank

KUALA LUMPUR: The ringgit is expected to stabilise against the US dollar at RM4.54-RM4.58 by the end of the year, driven by expectations of a softer greenback and lower US Treasury yields as the US Federal Reserve (Fed) embarks on a rate-cutting cycle in 2024.

OCBC Bank chief economist Selena Ling said the stabilisation of China’s economy should also benefit the Malaysian economy as inbound tourism from there remains strong.

“(The forecast) looks aggressive. I think most of the events are calling for around 4.45 (against the US dollar). We expect improving domestic fundamentals to remain supportive of the currency,” she told a media briefing on Malaysia’s 2024 economic outlook here today.

In a statement, OCBC Bank said 2023 was a challenging year for Malaysia as external pressures and domestic uncertainties weighed.

“Export growth experienced a broad-based decline in the second half of 2023, resulting in narrower trade and current account surpluses. Import growth, mirroring weaker domestic demand conditions, also eased last year.

“Capital outflows were volatile with the financial account deficit persisting for five consecutive quarters to the second quarter of 2023 and the local currency depreciating over 4.0 per cent in 2023 versus the US dollar,” it said.

Meanwhile, the bank also forecast crude palm oil (CPO) prices to average at RM3,650 per tonne this year versus RM3,813 per tonne in 2023.

It said the modest 4.3 per cent reduction estimated in CPO prices underscores a picture of broader stable supply from key producers such as Malaysia and Indonesia while global demand weakens, consistent with slower global growth.

“That said, production risks remain on account of the ongoing El Nino phenomenon,” it added.

This, combined with a less restrictive US rate environment, will make it more conducive for Bank Negara Malaysia (BNM) to keep the Overnight Policy Rate (OPR) rate on hold at 3.0 per cent, under OCBC Bank’s baseline.

“Although the inflation outlook will be impacted by the fuel subsidy rationalisation timeline, our baseline is for the inflation outlook to remain manageable.

“We expect the Fed to deliver at least 100 basis points in rate cuts in 2024, allowing for more attractive interest rate differentials relative to the US.

“That said, it remains to be seen if this can manifest in higher portfolio inflows into Malaysia, especially given our view of slower global growth in 2024,” it said. – BK