by NUR HANANI AZMAN/ pic by MUHD AMIN NAHARUL
THE Malaysian ringgit, which was pounded in February, could remain under pressure with the central bank’s decision to further reduce Overnight Policy Rate (OPR) by 25 basis points (bps) to 2.5%.
The local unit came under pressure due to the Covid-19 virus outbreak and could have seen the worst once the new government is constituted, Sunway University Business School economics Professor Dr Yeah Kim Leng said.
“Its short-term fair value remains well supported by ample domestic liquidity, continuing current account surplus, ongoing positive economic growth, manageable inflation, and interest-rate differentials against most developed economies, including the US.
“If the recovery in China’s economy is sooner, I think it can support and provide optimism towards the ringgit,” he told The Malaysian Reserve yesterday.
The local unit weakened to hit RM4.23 against the greenback last Wednesday, the lowest since October 2017, amid political unrest last week. The local unit closed at RM4.21 against the dollar yesterday.
Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said the OPR cut by BNM stem the currency’s slide, likely to limit the emerging Asian unit’s yield.
“Lower interest rates, while helping to boost the economy, will make the ringgit less appealing from a yield perspective. Further cuts will depend on the evolution of the coronavirus situation and its effect on the economy.
“A lance of probabilities suggest more rate cuts are ahead of us though, especially with falling US Treasury yields give the BNM more room to manoeuvre,” he added.
Maybank Group head of foreign exchange Saktiandi Supaat forecast the ringgit could see some downside pressures in the interim on the back of Covid-19 concerns and political developments, which remain fluid at this moment.
“We had shifted our first quarter ringgit forecast higher from 4.12 to 4.16 during our monthly review end-February, but broadly still look for some recovery in ringgit versus dollar given mixed US growth data and increasing calls for US Federal Reserve (Fed) rate cuts going forward.
“For 2020 as a whole, ringgit fundamentals also remain well- anchored by sustained current account surplus, stable foreign- exchange reserves to retain imports and short-term debt,” he added.
He added the monetary and fiscal support from OPR cuts and government development and infrastructure projects, as well as growth supportive Budget 2020 measures, to structurally revive capital expenditure and boost private consumption as Covid-19 and political concerns ease.
AmBank Group’s chief economist and head of research Dr Anthony Dass said the drag on the economy could continue into the second quarter 2020, much depends on the severity of Covid-19 impact that is already disrupting global supply chain and shipping.
He said, it is impacting exports and imports, thus already hurting manufacturing production and affecting services.
In containing the downside risk of the economy, much depends on how fast the government will be able to roll out the stimulus measures and Budget 2020 initiatives, he said.
With the cut in OPR, it may provide some short term positive impetus on ringgit, more likely to appreciate against the dollar around 0.1%-0.2%.
“However, any movement on the ringgit will be influenced by ongoing external and domestic challenges. Rate cuts should see the bond yields in the near term, probably falling around 1.5%-2%,” he added.
On the global front, the Fed is expected to announce an interest-rate cut by a quarter to 50 bps to stabilise market rout as a result of the Covid-19 outbreak at its monetary policy meeting on March 18.
The Reserve Bank of Australia slashed interest rates to a record low of 0.5% to support the economy yesterday.