UOB Malaysia expects ringgit to appreciate to 4.10 against dollar this year

United Overseas Bank (Malaysia) Bhd (UOB Malaysia) is optimistic the ringgit will appreciate against the US dollar this year to the 4.10 level, providing a much-needed relief to Malaysian companies and consumers who heavily rely on imported goods.

Economist Julia Goh said the market had responded relatively well to Malaysia's new fiscal measures introduced as part of the country's recalibrated 2016 Budget announced in January.

She said the government's move to improve the country's fiscal position from declining prices and weaker US dollar contributed to the ringgit's strength.

"We think the receding of domestic (political and economic) headwinds for Malaysia last year will also pave the way for the ringgit's improved outlook this year.

"We have seen the ringgit performing at its worse last year against the US dollar, but it has quickly turned around to be among the strongest at the end of the last quarter," she told a press conference here today.

In the coming months, Goh said the ringgit would be supported by the country's diversified export base and sustained current account surplus.

However, in the short term, she expects the ringgit to be volatile due to external factors.

"Generally, on the external front, we expect a moderate slowdown in China's growth, a gradual movement of US interest rates and oil prices (Brent crude) to hover between US$30 and US$35 per barrel," said Goh.

On Malaysia's Gross Domestic Product (GDP), Goh said the fourth quarter 2015 GDP growth of 4.5 per cent showed a degree of underlying resilience for the Malaysian economy.

"But given that there is a lot of external risks in the picture, we are holding on to our growth outlook at 4.2 per cent this year.

"We are generally expecting growth to ease further in the first half of this year but with government support measures expected to take off in the second quarter, we expect things to improve in the second half of the year to an average of about 4.5 per cent and, subject to external developments," she added.

Meanwhile on interest rates, she said UOB Malaysia was keeping its year-end forecast of 3.25 per cent for the Overnight Policy Rate (OPR).

"We don't expect any adjustments this year but in any case, there could be a 50-50 chance in the middle of the year, depending on growth conditions which is very much dependent on external factors.

"If external conditions remains stable and there is no slowdown in economic growth, it is likely that Bank Negara Malaysia may decide to keep interest rates on hold," she added.