by RUPINDER SINGH / pic TMR File

RHB Research has not ruled out that the Ringgit may hit RM5.00 against the US dollar in the medium-term.

The forecast from the research house comes as the initial short-term target of 4.60 was surpassed today, leading to a revised near-term target of 4.70, with a potential print at RM4.75.

“In the medium-term, we wouldn’t rule out USDMYR hitting 5.0. Our near-term SGDMYR target of 3.40 has also been breached and we raise our target to 3.45-3.50,” it said in the report today.

It noted that the balance of risks for RHB Research’s end-2Q’2023 projection of 4.55-4.65 now leans towards the higher range of 4.65-4.75.

Several factors contribute to the relentless upward momentum of the USD-RM pair.

The negative carry on holding the ringgit is expected to increase as the Bank Negara Malaysia (BNM) falls behind the currency market and inflation curve.

Additionally, market expectations of US Federal Reserve Bank (Fed) Federal Funds Rate (FFR) hikes continue to rise, with a potential 25 basis points hike at the upcoming June 15 FOMC meeting, further impacting the currency.

Furthermore, dwindling domestic sentiment towards the ringgit is evident through low trading volumes in the domestic stock market and indications of capital flight to alternative assets platforms.

Moreover, upcoming state-level elections may result in limited fiscal and structural reform announcements, posing further challenges for the Malaysian currency.

RHB Research’s USD-RM model indicates that unless significant changes in guidance from the BNM and substantial fiscal reforms are announced in the coming months, the USD-RM exchange rate could reach 4.762 by the third quarter of 2023.

The research firm emphasises the crucial need for an interest rate defense of the ringgit by the central bank to stabilize the currency.

However, given the prevailing strong upward momentum, an overnight policy rate (OPR) of 3.75% with hawkish guidance may only be able to stabilise the currency within the range of 4.40-4.60.

It said that the  situation reflects a common dilemma observed in emerging markets, where policy responses often lag behind rising fiscal risks and declining domestic confidence in the currency.