Ringgit to gain on reopening of economy, 12MP sentiment

The reduced concern from the political front and the MoU between both the political blocs will further extend support to the local unit

by ASILA JALIL / Pic by MUHD AMIN NAHARUL

THE ringgit is expected to appreciate in the near term buoyed by the 12th Malaysia Plan (12MP) spending bill and targets, as well as the reopening of economic activities in the country as the Covid-19 pandemic shows signs of abating.

MIDF Research economist Abdul Mui’zz Morhalim foresees the ringgit to move towards RM4.10 against the US dollar by year-end, backed by better growth outlook.

“The economic reopening (given the easing restrictions on the economy), and sustained current account surplus due to high oil prices and strong external demand will support the ringgit higher.

“We believe development plans included in the 12MP will also contribute positively to Malaysia’s growth outlook and therefore will be positive to the ringgit performance,” he told The Malaysian Reserve (TMR) in an email reply recently.

The reduced concern from the political front and the memorandum of understanding (MoU) made between both the political blocs will further extend support to the local unit, he stated.

The local unit closed unchanged at RM4.183 against the greenback yesterday after having tested RM4.134 on Sept 9.

Abdul Mui’zz added that the ringgit’s appreciation can be limited by foreign developments such as policy tightening by the US Federal Reserve (Fed) and growing concerns over global growth outlook which would result in higher demand for the US dollar.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told TMR that the ringgit will continue to be affected by external events such as the threats of slower growth in China and the potential standoff between the US and its allies with China.

The possible emergence of new Covid19 variants and other geopolitical events could also trigger market volatility and cause risk aversion to set-in.

Mohd Afzanizam, however, does not disregard the positive impact from the 12MP to the local unit.

“The 12MP is a medium-term plan and therefore, the impact to the ringgit exchange rate will be contingent upon the execution of the plans and its resulting impacts.

“If the plans can be executed in a timely manner, it would be positive for the ringgit,” he said.

The government tabled the 12MP in Parliament on Monday which outlines the five-year development plan to restructure the economy for the people’s wellbeing by 2025.

Among the goals set out in the plan include for the nation to achieve a GDP growth rate of between 4.5% and 5.5% annually between 2021 and 2025.

The government also plans to raise the average household income to RM10,000 per month by 2025.

From a technical perspective, Kenanga Research projected for the ringgit to trade in a range between 4.18 and 4.20 against the greenback this week as the dollar index is expected to remain above the 93.0 level amid the ongoing risk-off environment.

“Even though the Brent crude oil price climbed above the US$78 (RM326) per barrel (its highest level since Oct 2018) last Friday, the ringgit continued to post weekly losses against the dollar.

“The USD/MYR pair broke above the 4.19 level on Sep 22 amid uncertainty surrounding the Fed policy and worries over Evergrande Group’s debt crisis.

“However, the local note charted some gains post-Federal Open Market Committee after the Fed announced its tapering plan,” Kenanga stated in a report Monday.

It added that the ringgit is seen to benefit from the positive sentiment brought forward by the tabling of the 12MP and elevated crude oil prices.

“Externally, the local note may be influenced by the progress of the US debt ceiling negotiations and Evergrande’s debt overhang situation.”