Malaysia ringgit poised for strong rebound to 4.5 versus US dollar by year-end, minister Amir says

The ringgit traded at 4.76 to the US dollar on Thursday afternoon, rebounding slightly from 4.8 on February 20 — its worst performance since the 1998 Asian Financial Crisis.

In response to questions in parliament on Wednesday about whether the currency might slide further, Second Finance Minister Amir Hamzah Azizan said that the country’s “economic growth forecast of four to five per cent this year is expected to facilitate the ringgit’s recovery against the US dollar to 4.50 ringgit”.

“Market analysts have estimated the ringgit to be undervalued by between eight and 10 per cent”, Amir said, noting the local currency’s current slide has largely been driven by the strengthening of the US dollar and the uncertainty of China’s economic growth, which has also dragged down other Asian currencies.

He also noted that the ringgit has depreciated 3.5 per cent against the US dollar in the year to date, compared with the decline of regional currencies such as the Japanese yen, the Thai baht and the Korean won by 6.3, 4.7 and 3.3 per cent, respectively.

The minister said BNM’s cautious interest-rate policy, which has been maintained at 3 per cent more recently after a previous hike of 125 basis points in total throughout the pandemic, had contributed to capital flight as investors shifted to dollar markets due to the US Federal Reserve’s aggressive tightening policy.

“The significant difference in interest rates with the US, which is as much as 250 [basis] points, for example, encourages foreign investors to move capital out of the domestic market to a market that provides higher returns,” Amir told members of parliament.

Among the other markets that have received significant capital outflows from Malaysia recently were Thailand, The