Rate cut fears put Malaysian ringgit at risk
kuala lumpur — Malaysia’s ringgit was sheltered from the worst of last month’s emergingmarket selloff, thanks to higher oil prices. It may be about to make up for lost time.
Traders will be hovering over the sell button after Wednesday’s policy meeting in case the central bank shows any sign of turning dovish due to the worsening USChina trade dispute and the new government’s decision to cut back on infrastructure spending to trim its debt burden.
The rally in oil prices is also in danger of peaking after Opec and its partners agreed last month to boost output, and US President Donald Trump lashed out at the group for not doing enough to reduce gasoline costs.
While central banks in Indonesia, the Philippines and India have all raised rates in recent months to bolster their currencies, Malaysia may end up doing the opposite. Analysts predict economic growth will slow to 5.5 per cent this year from 5.9 per cent, while inflation will cool to 2.5 per cent from 3.9 per cent, giving new Governor Nor Shamsiah Mohd Yunus plenty of reason to ease policy.
Although analysts predict Bank Negara Malaysia will keep its benchmark unchanged at 3.25 per cent this week, they have been trimming predictions for a future increase. The market implied policy rate for one year’s time has declined to 3.28 per cent from 3.41 per cent in May, data compiled by Bloomberg show.
Morgan Stanley predicts the ringgit will weaken to 4.28 per dollar by year-end due to expectations for a stronger dollar, concern about Malaysia’s debt burden and ongoing political uncertainties.