PETALING JAYA: Malaysia’s ringgit is expected to hold steady throughout the year with the US Federal Reserve (Fed) signalling a slowdown in interest rate increases, according to analysts.

Social, law and human rights head cum researcher at independent think tank Emir Research, Jason Loh Seong Wei said the ringgit is projected to remain steady in financial year 2023 (FY23) and could strengthen to RM4.15 against the greenback, but not fluctuate to the extent of breaching the psychological RM4.50 level with the Fed seen to slow rate increases.

“This is in line with the data showing that US inflation has slowed on an annual basis for six straight months, dipping to 6.5% after peaking at about 9% in June last year,” he told SunBiz.

The US Consumer Price Index in December 2022 declined month-to-month in more than 2½ years with core inflation making the smallest gain since December 2021.

“In other words, we should be bracing for interest rate hike stability by the Fed which is aiming or hoping for a soft landing,” he added.

Last week, International Trade and Industry Minister Tengku Zafrul Aziz said Malaysia’s economic expansion will have the biggest influence over how the country’s currency fares this year.

“Malaysia’s growth will have a bearing on the strength of the ringgit this year, I think. That will be the key determinant,” he told Bloomberg at the World Economic Forum in Davos, Switzerland, on Jan 18.

At 6pm on Jan 20, the ringgit was higher at 4.2830/4.2875 against the US dollar from the previous day’s close of 4.3050/4.3100.

The local unit also appreciated against a basket of major currencies – the Singapore dollar to 3.2386/3.2425 from 3.2483/3.2523 at Jan 19’s close, the euro to 4.6393/4.6442 from 4.6602/4.6656, the British pound to 5.2861/5.2916 from 5.3111/5.3172, and Japanese yen to 3.3073/3.3111 from 3.3544/3.3588.

Earlier this month, Maybank Investment Bank foreign exchange research (forex) and strategy head Saktiandi Supaat said the outlook for the ringgit should lean positive for FY23 although it stays cautious of external risks – higher than the expected peak in Fed rates or a global economic recession.

“The ringgit is expected to float around RM4.40 in Q1’23 before moving to 4.25 and 4.15 levels in Q2 and Q3 and to end the year at RM4.05,“ he told a press conference during Maybank IB’s 2023 market outlook.

UOB economists Julia Goh and Loke Siew Ting said the the current market expectations for the Fed ending its interest rate hike cycle by Q1’23 augur well for emerging market currencies.

“This is also supported by the continuation of China’s economic stimulus and consensus of the positive growth outlook for most Asian countries,” they wrote in a research note.

The bank said the ringgit is likely to strengthen to RM4.35 against the US dollar by the end of 2023.

Standard Chartered Asia forex strategist Divya Devesh said it holds a neutral outlook on the ringgit which it expects to continue to be supported by high commodity prices.

“We forecast the ringgit to be at the 4.25 level by June 2023 and to end the year at RM4.40. Overall, our forecast is between 4.20 and 4.40 through this year,” Divya said during its first half 2023 market outlook media briefing recently.