KUALA LUMPUR: The RM44 billion East Coast Rail Link (ECRL) project revival will likely rejuvenate the ringgit and local construction sector, economists said.
The latest turn of events has spread a more positive sentiment in the market with local and international banks being more optimistic in their ringgit forecasts.
They believe the mega project adds to the factors that will push the local currency higher. Other factors include recovery in oil price, constructive trade talks between the world’s two largest economies as well as better economic performance expected in the second half of the year.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the ECRL revival could turn out to be the much needed catalyst for the ringgit to trade higher.
“Perhaps, the foreign exchange markets are awaiting for more catalysts as the recent statistics from China have been quite encouraging amid constructive development in the trade discussion between the US and China,” he said when contacted by the News Straits Times.
“Further details on the ECRL project should help to steer ringgit into stronger level,” he added.
The revived ECRL will cost RM44 billion, a reduction of RM21.5 billion or 32.8 per cent from RM65.5 billion previously.
Afzanizam said the ringgit could linger around RM4.0809 and RM4.1272 in the immediate term.
As soon as the news on the revival of ECRL was out, New York-based ING Financial Markets upgraded the ringgit forecasts to RM4.07 for the second quarter and RM4.05 for the third quarter of this year from RM4.10 and RM4.11 respectively.
Putra Business School business development manager Prof Madya Dr Ahmed Razman Abdul Latiff said the local currency became stronger after Prime Minister Tun Dr Mahathir Mohamad’s announcement on the ECRL project revival.
“We expect the ringgit’s performance to be unchanged and will gradually strengthen in the next few months,” he said.
“With ECRL expected to resume, we hope foreign investors would return to buy equities in the Malaysian stock market,” he added.
Meanwhile, the latest update on ECRL leads the market to become more confident that the worst is over for the construction sector.
Analysts said a potential bottom may be in for the sector after four consecutive quarters of negative business sentiment.
Hong Leong Investment Bank said sentiment on the domestic construction industry had been boosted by positive newsflows such as resumption of ECRL project, revival of 121 infrastructure projects with the total value of RM13.9 billion, potential revival of High Speed Rail and approval of high impact projects under midterm review of 11th Malaysia Plan.
“Although we do not expect the domestic construction industry prospects to go back to where it was during the period of pre- General Election 2014, we opine that the worst is over for the industry,” it said in a note.
MIDF Research is confident the sector would rebound following the ECRL revival.