KUALA LUMPUR: Malaysia's robust economic fundamentals, coupled with ongoing reforms, are favourable for the ringgit, according to UOB Global Economics & Markets Research.
In a macroeconomic note issued on Friday, the research firm noted that narrowing the interest rate differential between Malaysia and the US also provides additional support for the local currency.
"Post-US elections, it was reiterated that Bank Negara Malaysia (BNM) stands ready to manage volatility in domestic markets, including ensuring sufficient FX liquidity. At the current juncture, we keep our expectations for a weaker USD against most G-10 and Asia peers premised on the Fed continuing its rate cuts despite the election outcome (link).
"That said, Donald Trump 2.0 poses upside risks to our bearish USD outlook of USD/ringgit at 4.28 in the first quarter (Q1) 2025, 4.23 in Q2 2025, 4.18 in Q3 2025, and 4.14 in Q4 2025," it said.
Recently, Finance Minister II Datuk Seri Amir Hamzah Azizan and BNM governor Datuk Seri Abdul Rasheed addressed over 150 participants in a closed-door engagement session held in Kuala Lumpur following the launch of a one-stop portal InvestMalaysia for investors to obtain information on Malaysia.
The discussion centred on building resilience in the economy, creating strong engines of growth, and preparing foundations for reforms.
According to UOB, the Minister emphasised that reforms require patience, and a conducive environment is needed to ensure the reforms are sustainable.
However, UOB said there was concern that implementing a broad-based float of RON95 would set off inflationary pressures and heighten the cost of living.
"Hence, the proposed mechanism is said to keep a tighter lid on inflation, which lends to the official inflation forecast of 2.0 to 3.5 per cent for 2025," it said.
In addition, UOB said the government sets the foundation for subsidy reforms, and the approach taken can be broadened once the mechanism and the impact stabilise.
"The RON95 subsidy rationalisation and broader sales & service tax (SST) can help strengthen the fiscal position, with savings of RM8 billion and additional revenue collected of RM5 billion, respectively.
"It was mentioned that the SST could be further broadened," it added.