KUALA LUMPUR (March 13): The ringgit is expected to strengthen to 4.50-4.55 range by year-end on the back of interest rate cuts in the US and Europe as well as improving domestic investment climate.
While the US Federal Reserve (the Fed) has yet to begin its interest rate cuts so far this year, Rakuten Trade head of research Kenny Yee is convinced that the Fed will have to cut its benchmark rates sometime this year.
"I don't think the US can hold another nine months with this high interest rate environment,” Yee told reporters at a virtual briefing on market outlook for the second quarter. “The regional banks are already suffocating.”
The Fed has kept its benchmark interest rate at 5.5% since July 26, 2023. The next Fed decision on the rate is expected to be announced on March 20.
Yee is predicting four rate cuts by the Fed this year of around 50 to 100 basis points each, with the benchmark interest rate targeted to reach around 2%.
Apart from easing global interest rates, Yee highlighted that the incoming foreign direct investments into Malaysia, especially from neighbouring countries such as Singapore, will also boost both the ringgit and regional currencies.
Overseas investors are also accumulating Malaysian stocks, Yee said, noting marked improvement with foreign shareholding level at 19.34% by February versus 11.35% at the end of 2021 during Covid-19 pandemic while Malaysia underwent a political transition.
"Therefore, we are confident that foreign shareholdings will surpass the 20% threshold and test the 25% level since Malaysia has been shunned and under-invested by foreign investors for so long," he added.