KUALA LUMPUR: The ringgit will remain under pressure against the US dollar as the interest rate gap widens, while the US federal funds rate will be higher than Bank Negara Malaysia’s Overnight Policy Rate 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 lower oil prices in August and the aggressive rate increases by the US Federal Reserve (Fed) over the past months.
“This scenario suggests that US inflation has not yet peaked and the Fed is highly likely to proceed with another 75 basis points hike in the coming the Federal Open Market Committee meeting next week,” he told Bernama today.
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 anticipating an earlier-than-expected US recession, considering that there are signs of softening in the US labour market.
“The overall sentiment is primarily driven by the US right now,” he added.
US CPI data revealed higher-than-expected inflation of 8.3% in August, versus the forecast of 8.1%.
On Tuesday, Finance Minister Tengku Datuk Seri 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 ended at a new 24-year low against the US dollar today. At 6pm, the local currency slid to 4.5265/5285 against the greenback from 4.5070/5085 at Tuesday’s close. – Bernama