“This expectation is based on the anticipation of a 50 basis points cut in the US interest rate later this year amid a stable overnight policy rate (OPR) in Malaysia,” it said.
The research house said the pressure on the ringgit due to the interest rate differential factor, which has contributed to the US dollar’s strength since 2022 will ease.
“The ringgit has stabilised against the US dollar after coming under pressure due to shifting expectations on the timing and quantum of US interest rate cuts.
“It traded within the RM4.68 to RM4.71 range versus the US dollar from May 15 to May 31, 2024, after weakening to the low of RM4.80 twice this year on Feb 20 and April 16 (end-2023: RM4.59),” it said based on a report titled “Asean Frontiers: The New Trailblazers”.
Maybank said the ringgit’s recent performance reflects the positive macroeconomic performance and prospects plus ongoing reforms and restructurings.
“This includes Bank Negara Malaysia’s (BNM) verbal and forex market interventions.
“Additionally, the administrative measure to encourage government-linked companies and investment funds, together with private sector corporates including exporters to repatriate their foreign exchange earnings and investment income abroad and convert into ringgit,” it said.
As for the OPR, the firm said the “key domestic wildcard is inflation” following the introduction of Account 3 by the Employees Provident Fund (EPF) as consumer spending is expected to surge from Account 3 withdrawals.
“This can pose an additional upside risk to inflation via demand-pull inflation, on top of the expected impact of the targeted fuel subsidy rationalisation implementation this year.
“This, in turn, could lead to upside risk in the OPR outlook, which currently, we expect to remain stable at the current level of 3% until end-2025,” it added.
On the Kuala Lumpur Composite Index (KLCI), Maybank said the KLCI had a good run in the first five months of 2024, rising 7.1% in US dollar terms – and has been one of the best-performing markets in the region.
However, in terms of fund flow, foreign investors were still generally net sellers, disposing of RM760 million worth of shares from January to May 2024, however against regional peers, the net sell on Malaysian equities had been the lowest.
“For May, they were prominent net buyers in the first three weeks but reversed to a net sell in the fourth week,” it noted.