What’s the outlook for the ringgit? | Borneo Post Online

What’s the outlook for the ringgit? | Borneo Post Online


Bank Negara Malaysia (BNM) stepped in to mitigate the impact that Covid has inflicted on the economy. In 2020, BNM has undergone a series of rate cuts up to a total of 125 basis points (bps). The swift monetary easing could have further contributed to the ringgit’s downwards pressure.

BNM’s tone regarding the economy is less pessimistic compared to its previous statement as major economies relax containment measures leading to a gradual resumption in economic activities.

Locally, the number of red zones in Malaysia has gradually declined as new Covid cases taper off. Should the Covid situation remain under control, a similar aggressiveness in rate cuts we have seen so far is unlikely moving forward. Hence, the downside risk for the Ringgit has decreased.

The Covid pandemic has brought economic challenges and grief to many parts of the world, Malaysia included. Faced with various challenges, global rating agencies have revised the Malaysian outlook to negative, which could place downward pressure on the ringgit.

BNM demonstrating its willingness in supporting the economy via cutting rates has added to the pressure. Further downside risk to the local currency could also stem from an escalation of the Covid pandemic.

However, the situation appears to be better as economies have started to reopen gradually. Analysts’ estimation of 2021 GDP growth paints a decent recovery picture for many of the countries under our coverage.

Coupled with a recovering oil price, an increase in local export activities could also provide some support to Malaysia’s current account surplus. These positive elements are putting together a constructive picture of the local currency.

Should the ringgit appreciate, local investors that invest in assets denominated in foreign currencies may incur losses from currency translation. As such, investors can consider opting for ringgit-hedged class to mitigate upside risks from ringgit and reduce volatility stemming from currency movements.