KUALA LUMPUR (March 17): The ringgit is expected to recoup its recent losses and close 2023 on a stronger note with the return of foreign funds to Malaysia, amid the banking crisis fear in the US and Europe, said Rakuten Trade Sdn Bhd. 

The research firm is projecting the local currency to strengthen back to RM4.10 to RM4.20 versus the US dollar by end-2023. 

The ringgit has weakened by 5.47% against the US dollar since its recent high of RM4.24 on Jan 30, 2023. The local currency strengthened 0.39% against the greenback to 4.4855 at the time of writing. 

“I think there will be improving demand for the local currency once the foreign funds start to spill over back into Asia. When the foreign funds decide to come over, the demand will drive up the value of the ringgit,” Rakuten Trade head of research Kenny Yee told a virtual media briefing Friday (March 17) on Malaysia's second-quarter market outlook.

According to Yee, the US remains the epicentre of global market volatilities.

“I think uncertainties remain as the [US] Federal Reserve has been unrelenting in adjusting the Fed rates, while the US banking sector is looking shaky at the moment,” he added.

Against this backdrop, Yee expects a hard landing for the US economy and the equity market. 

“[However], let’s not be too downbeat on the recent episode in the US. If you have been following our market outlook sessions, I have been talking of the dangers of the US market, just that we could not pinpoint or ascertain which part. Now (that) the banking crisis has emerged, it will force those fund managers to open their eyes and look elsewhere to invest their funds. So, we are quite positive that foreign funds will be looking for new destinations,” he said. 

Meanwhile, Rakuten expects Bank Negara Malaysia (BNM) to maintain its overnight policy rate (OPR) at the current level of 2.75% for the rest of the year, in a bid to keep the local economy humming. 

“The BNM should maintain interest rates and allow local economic activities to create domestic wealth. That will attract foreign funds when they see growth,” he said. 

BNM has kept the OPR rate at 2.75% since November last year. In 2022 alone, BNM raised the OPR about a cumulative 100 basis points from its historic low of 1.75%. 

The BNM’s next Monetary Policy Committee (MPC) is on May 2 and 3.  

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