Dr Shankaran Nambiar, a senior research fellow at the Malaysian Institute of Economic Research, told CNA that Malaysia cannot “depend too much” on what the US Fed does.
“The US still has concerns regarding inflation, so it’s not clear when they will stop raising rates, and you can be less sure when they will cut rates,” he said.
“Of course, if the latter happens, then it’s a clear path to the ringgit strengthening.”
Bank Muamalat Malaysia chief economist Afzanizam Rashid gave a more optimistic outlook, saying it will “only be a matter of time” before the US Fed cuts rates.
This will reduce the interest rate gap between US and Malaysia and improve the ringgit’s appeal, he said.
“The US rates have been too high for too long. The businesses and consumers in the US are feeling the pinch of higher interest rates,” he said.
“Knowing that the US consumer spending accounted for 70 per cent of its economy, a sudden stop in spending will cost their economy dearly.”
MAINTAINING PERSUASION
Mr Afzanizam said that the ringgit’s appreciation could be seen as signs of “confidence building” following an inflow of funds from international portfolio investors into Malaysia.
“The government is also committed to fiscal consolidation where there have been measures to raise tax and reduce subsidies,” he said.
“This will help the government to reorganise its resources so that they will (focus) on areas that will improve the country’s productivity in the long run. This may include more spending on education, healthcare and infrastructure.”
On May 22, Prime Minister Anwar Ibrahim announced that the government will cut diesel subsidies, which is expected to save around RM4 billion (US$847.8 million) a year. Petrol subsidies are expected to be trimmed next.
Once the government has consolidated its fiscal position, Mr Lee said credit rating agencies will hopefully review Malaysia’s investment outlook and make it a more attractive place for investors.
Mr Afzanizam said the federal government is also working with state governments to create more economic activities, with one example being the Johor-Singapore Special Economic Zone.
“This would result in more infrastructure projects to be built and the creation of multiplier effects to the economy. Essentially, this will attract foreign funds to Malaysia,” he said.
Meanwhile, efforts to persuade GLCs and GLICs to bring home investment returns should continue, although this should not be made mandatory to ensure their investment activities are not restricted, the analysts said.
The central bank estimates the potential annual income conversions alone to be between US$6 billion to US$7 billion, which would have been more than enough to offset Malaysia’s negative net outflows in 2023.
Mr Adnan said the central bank is looking at how it can further encourage corporates and businesses to bring back foreign currency balances, including a pilot initiative to allow these companies to reinvest abroad quicker when the time comes.
This “fast-track pre-approval framework” will alleviate concerns by corporates that do not bring foreign currency balances back to avoid the approval process for reinvesting abroad, he said.
“For the few corporates that we have engaged on this, the response has been very encouraging, with some even bringing back and converting immediately,” he added.
