KUALA LUMPUR – The ringgit will remain under pressure against the US dollar as the rate gap widens, while the United States’ (US) federal funds rate will be higher than the overnight policy rate (OPR) by next week, said Bank Islam Malaysia Bhd chief economist Firdaos Rosli.
He said the market is reacting to the latest US Consumer Price Index (CPI) data which showed that the country’s inflation remains high, despite the lower oil prices in August 2022 and the aggressive rate hikes by the US Federal Reserve (Fed) over the past months.
“This scenario suggests that the US inflation has not yet peaked, and the Fed is highly likely to proceed with another 75 basis points hike in the coming Federal Open Market Committee meeting next week,” he told Bernama.
Firdaos pointed out that the US Treasury three-year and 10-year yield gap has narrowed by 14 basis points (at the point of writing) – an early warning of a recession in the US.
“As such, the market is also anticipating an earlier-than-expected US recession, considering that there are softening signs in the US labour market.
“The overall sentiment is primarily driven by the US right now,” he added.
The US CPI data revealed a higher-than-expected inflation at 8.3%, versus the forecast of 8.1%.
On Tuesday, Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz was reported as saying that Malaysia is not experiencing an economic crisis just because the ringgit is trading at a low level against the greenback.
He explained that the ringgit’s performance should be viewed holistically, not just in comparison with the US dollar, as the local note has also strengthened against other currencies.
The ringgit slipped further to a fresh 24-year low against the US dollar at the opening today, in line with lower oil prices as more investors shifted towards safe-haven assets.
At 11am, the local currency slid to 4.5240/5260 against the greenback from 4.5070/5085 at yesterday’s close. – Bernama, September 14, 2022
