RINGGIT MAY COME UNDER PRESSURE
US Federal Reserve’s potential interest rate hike this month may have negative impact on local currency
THE ringgit’s movement may come under pressure in the coming weeks as the United States Federal Reserve (Fed) is expected to raise interest rates this month.
Bank Islam Malaysia chief economist Dr Mohd Afzanizam Abdul Rashid said the US inflation rate had already surpassed the two per cent target set by the Fed.
“A potential interest rate hike in the US is expected to have a negative impact on the ringgit’s movement in the near future,” he told NSTP Business.
He said the level of growth had surpassed the US’ long-term growth trend of 1.8 per cent and rising inflation of 2.9 per cent in July.
The Fed is expected to make the rate hike announcement at the Federal Open Market Committee meeting on September 25 and 26.
The Fed rate hike will be based on the second-quarter gross domestic product growth rate that has strengthened to 4.2 per cent.
Afzanizam said the uncertainty caused by trade disputes between the US and China was seen to be a more pronounced factor in the weakening of the ringgit.
He said the matter was evident when trade deficit figures between the US and China widened to US$36.8 billion (RM152.3 billion) in July from US$33.5 billion in June.
“It is possible that the US will continue the trade war campaign to reduce the widening deficit.
“The trade war was an external factor that affected the ringgit as well as other major currencies in developing countries,” he said.
The Institute for Democracy and Economic Affairs economist Adli Amirullah said the ringgit was influenced by the US interest rates and other external factors.
He said in the event of a hike in interest rates, it could potentially cause a drop in the ringgit (value), but it depends on other catalysts that can offset the impact.
“The situation was becoming increasingly difficult due to uncertainty in the global market, including a trade war between the US and China, unstable oil prices and the looming US midterm election.
“So, it is indeed a difficult period for any projection of the ringgit exchange rate until the end of this year,” he said.
Adli said efforts in strengthening the government’s administrative institutions will be able to contribute to the strengthening of the ringgit as well as help offset the impact on the local currency.
“These include the government’s move in combating corruption and financial scandals,” he added.