KUALA LUMPUR: The ringgit, which has been on a strengthening bias versus the US dollar, will continue to climb over the next three to 24 months, says Business Monitor International (BMI) Research, a unit of the Fitch Group.
The ringgit strengthened by 9.3 per cent year-on-year since January following the break of trendline resistance at RM4.32 against the US dollar.
It is likely to appreciate to 4.15 in 2018 from RM4.25 this year.
BMI said the decline in the five-year credit default swap (CDS) suggests that perceptions of default risk have continued to decline.
“Given the strong correlation between the ringgit and CDS spreads, this should support the ringgit in the near term, with the CDS spread having reached multi-year lows.”
The real effective exchange rate also remains cheap by historical standards despite having appreciated by 5.5 per cent year-on-year since January, it added.
On Malaysia’s fiscal position , it remarked that the government will achieve its 2017 deficit target of 3 per cent of GDP.
This was despite a special incentive for Felda settlers and election-related spending.
“We have long highlighted that default risk in Malaysia is extremely low and that the political situation would stabilise despite the need for general elections to be held by August 2018.