BMI Country Risk & Industry Research (BMI), a unit of Fitch Solutions, has revised its end-2024 forecast for the ringgit to RM4.00 per USD, up from its previous estimate of RM4.55 per USD, reflecting the currencyโs robust performance in Q3 2024. The revision comes amid narrowing yield differentials with the United States (US) and a relatively resilient growth outlook for Malaysia.
Positive Medium-Term Outlook for the Ringgit
BMI maintains a positive medium-term view on the ringgit, attributing the optimistic forecast to supportive factors such as Malaysiaโs economic resilience and the narrowing interest rate differentials between the US Federal Reserve (Fed) and Bank Negara Malaysia (BNM).
However, BMI acknowledged that risks to their forecast lean toward potential ringgit weakness, especially if the Fedโs interest rate trajectory or China’s economic growth deviates from expectations.
Strong Q3 2024 Performance
Over the past six months, the ringgit has reversed its earlier weakening trend and surged by 12.1% in Q3 2024, making it one of the best-performing emerging market currencies in the region. This performance exceeded expectations, prompting BMI to adjust its short-term outlook and revise the ringgit’s average value to RM4.35 per USD by year-end, compared to its previous forecast of RM4.55 per USD.
Technically, the ringgit hit a multi-year trendline resistance of RM4.20 per USD on Sept 23. BMI anticipates the currency could test the next resistance level at RM4.00 per USD by end-2024, although short-term fluctuations are possible as the relative strength index suggests the currency may face temporary depreciation.
Narrowing Yield Differentials Favor the Ringgit
BMI expects narrowing interest rate differentials between the US and Malaysia to provide further support for the ringgit. The Fed’s recent 50 basis point (bps) rate cut in September, which lowered the US Fed Funds rate to 5.00%, exceeded BMIโs earlier expectation of a 25 bps reduction.
BMI now forecasts the Fed will continue easing its monetary policy, cutting an additional 75 bps by Q4 2024, bringing the Fed Funds rate to 4.25% by year-end. In contrast, BNM is expected to hold its Overnight Policy Rate (OPR) at 3.00%, bolstering the ringgitโs strength as yield differentials narrow.
Long-Term Forecast: Ringgit to Strengthen in 2025
Looking beyond 2024, BMI forecasts the ringgit to appreciate further, predicting it will strengthen by 9.0% in 2025, reaching RM3.55 per USD by the end of that year.
The primary driver for this projected appreciation is further Fed policy loosening in 2025, with anticipated rate cuts totaling 125 bps, lowering the Fed Funds rate to 3.00% by the end of 2025. In contrast, BNM is expected to keep the OPR steady at 3.00%, further supporting the local currencyโs appreciation.
Revised Long-Term Averages
As a result of these developments, BMI has revised its forecast for the ringgit to average RM3.80 per USD in 2025, up from its previous estimate of RM4.48 per USD. This reflects a more optimistic outlook for Malaysiaโs currency as economic conditions and monetary policies in both the US and Malaysia evolve in favor of a stronger ringgit.
Conclusion
BMI’s revised outlook signals a positive trend for the ringgit, driven by its strong Q3 2024 performance, favorable interest rate differentials, and economic resilience. As Malaysia navigates global uncertainties and domestic economic dynamics, the ringgit is poised to strengthen further, offering encouraging prospects for investors and businesses in the region.
