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This Week at a Glance…

i) Bank Negara Malaysia holds the OPR at 3.0%.

The central bank stated that the current OPR is accommodative of the economy’s growth, despite calls for raising it to strengthen the ringgit.

ii) Ringgit strengthens to RM4.7260.

From its 25-year low of RM4.7924 last Wednesday, the local note has reversed course and gained 0.94% this week.

iii) The US Federal Reserve kept rates steady at 5.25-5.50%.

Fed Chairman J. Powell stated that no rate cuts are being considered at the moment, but markets rallied and the dollar slumped.

Scroll down to read the details.

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BNM maintains OPR at 3.0% despite rocky performance of ringgit

The central bank stated that the current OPR “remains supportive” of the economy, despite calls to hike rates to boost the ringgit from its 25-year low.

The decision came as no surprise, aligning with the majority of economists in both surveys from Reuters and Bloomberg.

In its statement, BNM said that global growth is being dragged lower by persistently elevated inflation and high interest rates.

The expectation of “higher-for-longer” interest rates, combined with geopolitical tensions in the Middle East, has contributed to a persistently strong dollar.

BNM justified that this has affected other currencies as well, not only the ringgit.

However, “these developments are not expected to derail Malaysia's growth prospects,” it added.

Moving forward, the central bank expects the economy to improve due to continued employment, wage growth, tourist arrivals, and progress in large-scale projects.

BNM also pledged that it will manage the risks of volatility in the ringgit, including direct intervention to ensure the orderly functioning of the local FOREX market.

Ringgit reverses downward spiral, closes at RM4.7260 on Friday.

After sliding to its 1998 low of RM4.7924 last week, the ringgit rallied by 0.93% since Monday to close at RM4.7260.

While some of the strength was due to BNM’s decision to keep the OPR level at 3.0%, a large part of it came from dollar weakness.

Hours before BNM’s decision on Thursday, the US Federal Reserve also decided to keep interest rates steady at 5.25%-5.5%.

The Dollar Index, a measure of the value of the US dollar relative to a basket of foreign currencies, declined by 1.11% since Wednesday.

The similar movement was reflected in the USDMYR pair.

US Fed leaves rates unchanged, markets rally while dollar slumps.

For the second consecutive meeting, the Fed has held interest rates steady at 5.25-5.50%, after its unprecedented tightening from 0.25% last year.

Chairman J. Powell stated that the central bank hasn’t made any decisions for the final meeting in December, clarifying that the second pause on rate hikes doesn’t mean that it won’t raise again.

Powell also stressed that the path to getting inflation back down to 2% still has a “long way to go,” and the committee hasn’t begun considering rate cuts at the moment.

Despite Powell’s statements, analysts were convinced that the Fed is done hiking rates for the rest of the year and is likely to leave them unchanged during its final meeting in December.

Chief economist Peter Cardillo said that "the fact that they left rates unchanged for the second time in a row suggests the Fed might leave rates unchanged in December. And if they do, that means the Fed is done."

Probabilities from CME Group now show that 80.4% of investors are confident that the Fed is done hiking rates for the rest of the year.

Consequently, the dollar fell while markets rallied.

The S&P closed up 4.40% since Wednesday, while back at home, the FBMKLCI gained 0.74% over the same period.

Brighter days for the ringgit?

The chief economist of Bank Muamalat, Dr. Mohd Afzanizam, said that apart from the Fed, the Bank of England is among the major central banks that have decided to keep their policy rates unchanged.

"If this trend continues, we believe the ringgit is poised for a recovery. However, it might not be a smooth journey as geopolitical risks could lead to a risk-off mode, increasing demand for safe-haven currencies like the US dollar,” he told Bernama.

That’s all for this week’s newsletter!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.

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