The Malaysian Institute of Economic Research (MIER) expects the ringgit to strengthen against the US dollar, reaching a range of 4.20 to 4.25 by the end of 2024. This forecast represents a significant growth from the 4.59 level at 2023. However, the institute also warned that the persistent strength of the US dollar could limit the ringgit's appreciation to an average exchange rate of 4.60 to 4.64 for the year. MIER noted that the ringgit's appreciation would be influenced not only by US monetary policy but also by domestic factors. Fiscal reforms aimed at reducing the budget deficit and robust GDP growth are expected to support the currency. Additionally, solid foreign direct investment, repatriation of funds from government-linked companies, and a sustained current account surplus driven by strong exports in electronics, tourism, and services are seen as further strengthening the outlook for the ringgit. Foreign investment in Malaysia's equity and bond markets is another positive factor that is anticipated to contribute to the currency's appreciation. In July 2024, the equities market experienced an inflow of 1.3 billion ringgit, reversing an earlier outflow of 823.6 million ringgit. Meanwhile, foreign inflows into the bond market totaled 874.6 million ringgit in the first half of the year. Despite the ringgit's undervaluation, indicators such as the Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) suggest its fair value lies between 3.90 and 4.20 against the US dollar. MIER also noted rising expectations for a Federal Reserve rate cut in September, fueled by growing recession concerns following disappointing July employment data. Market sentiment has shifted towards the possibility of a 50-basis-point rate cut in both September and November, potentially lowering the federal funds rate from its current range of 5.25 to 5.50 percent. Attribution: Malaysian Institute of Economic Research report Subediting: Y.Yasser
