KUALA LUMPUR, Dec 7 — The ringgit is expected to recover and appreciate to 4.20 against the US dollar by the end of 2024, given the high likelihood that the United States Federal Reserve (Fed) has ended its tightening cycle, said MIDF Research.

MIDF Research economist Abdul Mui’zz Morhalim said the interest rate differential between the greenback and ringgit is not anticipated to expand but instead decline, thus providing a reason to support the recovery of the local note which is fundamentally in a good position to strengthen next year.

“We also expect the US dollar to weaken against all currencies next year and that would put less pressure on using the overnight policy rate (OPR) as a tool to control inflation rate,” he said at the ‘MIDF 2024 Market Outlook Presentation: Cruising Along’ here, today.

Although the ringgit has been weakening recently, he said the local economy is seen to be growing steadily due to the policies and actions taken by the government.

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As such, he said the research firm expects the OPR to stay at 3.00 per cent, which is supportive and accommodative, based on the expectation that the core inflation rate and challenging external environment will stabilise.

“With the ringgit in strengthening mode, inflation is still manageable,” he said, adding that the strengthening of the ringgit would also attract more inflow of foreign funds next year.

Abdul Mui’zz noted that Bank Negara Malaysia would focus more on sustaining growth and price stability throughout the year.

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Meanwhile, in the equities market, he said global indices generally start the year on a positive note on the back of the Fed pause optimism.

“Asean markets have underperformed in the first half of 2023, attributed to various domestic factors. Nevertheless, there is a possibility of a recovery nearing the US rate pause,” he said.

For 2024, Abdul Mui’zz said the research firm expects the local market bellwether — the FTSE Bursa Malaysia KLCI (FBM KLCI), to grow 12.3 per cent year-on-year to 1,665 points, underpinned by the still resilient economic activities and supported by a less hostile monetary environment.

“In addition, empirically, for as long as the underlying economic performance remains favourable, the period following the end of the aggressive US Fed rate hikes could prove attractive for the equity market,” he added. — Bernama