Its Asia foreign exchange research head, Divya Devesh, said returning tourist receipts should also support the services balance under the current account.

“Therefore, the bank is maintaining its neutral stance on the ringgit,” he told a media briefing on the global and Malaysian outlook for 2023 today.

Divya said a weaker external demand could lead to an easing of exports, thus lowering the net goods surplus. However, it is still possible to see a current account surplus of 3% in 2023. This would be an improvement over the 2% recorded in 2022.

“But low reserve import cover and corporates’ preference to hold the greenback in a strong US dollar environment may negate positive effects of a current account surplus. The central bank may also opportunistically rebuild foreign exchange reserves,” he said.

Should the US dollar outlook turn sustainably weaker, Divya said, the ringgit might outperform as corporates sell their US dollar deposits, which rose to 10.1% of banking system deposits as of end-September 2022 from 8.1% at end-2020.

Divya said the new government still has to address the need for fiscal consolidation and Malaysia’s relatively low revenue to GDP, and high debt levels while balancing growth aspirations and low-income household support requirements.

“The 2023 budget will have to be re-tabled as elections were called before the budget could be passed. In the earlier proposed budget, the previous government presented a modestly narrower fiscal deficit of 5.5% versus 5.8% in 2022,” he said.

“It remains to be seen what new measures may be proposed and whether budget assumptions may change,” he added.