BMI has, therefore, lowered its forecast for the ringgit, a Bloomberg report said.
BMI expects the ringgit to average 4.50 per US dollar this year and 4.40 in 2018, from 4.00 and 3.88 previously. The ringgit fell 4.3% against the US dollar last year and 18.5% in 2015.
BMI said in a Jan 4 note that one reason for the downward move was the impact of the yuan, which, it said, would remain under downward pressure.
According to the Bloomberg report, BMI also expects a narrowing of real interest-rate differentials between the US and Malaysia, with the latter probably staying on hold this year while the Federal Reserve increases rates by a total of 50 basis points.
Also, noting that 40% of Malaysian bonds are held by foreigners, it expects further weaknesses in the global bond market to put the ringgit under pressure.
“The Chinese economy remains mired in a medium-term slowdown as the structural weaknesses such as overcapacity in the industrial sector and dominance of inefficient state-owned enterprises persist,” the note said.
“Given that China is Malaysia’s largest export partner, we believe that Malaysia’s export-driven economy remains exposed and is likely to be negatively impacted.”
But it is not all doom and gloom. The ringgit, BMI said, would likely claw back some losses over the longer term, supported by the rising price of commodities such as oil and improving terms of trade, which will be positive for domestic savings and investment.
According to the Bloomberg report, BMI said Malaysia’s relatively positive fiscal position relative to the US should keep inflationary pressure subdued.
It noted two negatives. First, if the Federal Reserve increased rates faster than expected it could lead to higher outflows from Malaysia and put the ringgit under greater pressure. Second, the Donald Trump presidency could result in a possible global trade slowdown and more protectionist measures, which will hurt Malaysia’s export sector.