The recent increase in inflation in the United States may slow down the ringgit's recovery that year but it will not fully affect it.
According to Hong Leong Investment Bank Bhd (HLIB), they expect an increase in the second half of this year following the re-emergence of sentiment regarding the determination of the Fed Funds Rate (FFR).
As the FFR peaks, they expect the strength of the US dollar to ease in the middle of the year. It is also driven by the presidential election in November.
This will bode well for the ringgit given the 93% correlation between the US Dollar Index and the ringgit.
He also said that the performance of gross domestic product in 2023 pushed the projection to increase to a normal level of 4.8% for this year. It was also driven by recovery in exports and growth in domestic spending.
Export growth that contracted since 2023 has now turned positive and is supported by stronger global trade activity in the economic cycle.
The ringgit is expected to remain weak in the near term before resuming its upward path to end the year at RM4.45 against the dollar.
The previous peak of FFR and OPR is a good gauge for the ringgit from the point of interest rate differential. Malaysia's OPR is predicted to remain at 3% throughout this year.
HLIB also said domestic pressure is more encouraging because economic growth is projected to move forward positively and subsidy reforms are in the pipeline to strengthen the fiscal position.
The continued recovery in Malaysia's tourism sector will be driven by visa-free travel for Chinese nationals and India will restore global aviation capacity throughout 2024.
