PETALING JAYA: Expectations are high that Bank Negara Malaysia’s (BNM) overnight policy rate (OPR) will remain at 2.75%, a level which economists believe would keep the ringgit within the “range-bound” levels observed over the past several months.
Since May, the ringgit has largely lingered around the RM4.20 level against the US dollar.
BNM’s Monetary Policy Committee (MPC) is set to meet later today to decide on the OPR, amid an evolving global economic backdrop, where the US Federal Reserve (Fed) is anticipated – at least on the surface – to cut rates as early as this month.
Fed chair Jerome Powell hinted on Aug 22 that the central bank may lower interest rates as soon as September, citing high levels of uncertainty that are making monetary policymaking more difficult.
JP Morgan Global Research, in a mid-August research, also projected a Fed rate cut in September.
Its chief US economist Michael Feroli said, in a statement, that risk management considerations at the next meeting may go beyond balancing employment and inflation, adding that the firm now sees the path of least resistance as pulling forward the next 25-basis-point (bps) cut to September.
However, according to AmBank Group chief economist Firdaos Rosli, it may still be too early to determine whether a rate cut will happen during the Federal Open Market Committee (FOMC) meeting later this month.
“There will be still a couple of data points that will be released and assessed by the United States. Although the market anticipates a cut by the Fed in September, I think there is little appetite for BNM to act on rates for now.
“This is because in the previous MPC meeting in July, the rate cut then was preemptive.
“Monetary policy transmissions usually takes about three months for the economy to adjust to that new level of interest rate,” Firdaos told StarBiz.
The OPR was reduced by 25 bps last July, BNM’s first move in nearly two years, in a “preemptive measure” to support growth.
He anticipates there is less chance of local rate cuts since private consumption is likely to remain at a healthy level.
“We note the RM100 one off Sumbangan Asas Rahmah payment, which will buttress consumption in the third quarter until the end of the year. This will be at everyone’s disposal till the end of the year.
“So, private consumption will likely remain firm. There is little incentive for BNM to act on this front,” he said.
Firdaos expects a slight correction in the US dollar to ringgit exchange rate to RM4.27 by the end of the year, noting that it will remain range-bound for now.
Meanwhile, Socio-Economic Research Centre executive director Lee Heng Guie concurred, noting that the ringgit is likely to hold steady at current levels against the greenback for the time being if the OPR remains unchanged.
“This is based on the expected easing of the Fed funds rate (FFR) in the near term. Fundamentally, the ringgit will be supported by positive economic and investment prospects,” he said.
“The sustained structural reforms and various strategic and transformative plans will sustain the foreign direct investment inflows to help support the ringgit.”
Lee’s year-end target for the ringgit is that it will strengthen to RM4.15 to RM4.20, given the good chance BNM will keep rates steady despite any easing in the United States.
Maybank Investment Bank Research (Maybank IB) said uncertainties stemming from tariff impacts and the weakening US job market are expected to lead to further steepening of the US yield curve, with the front end depressed by upcoming rate cuts while longer-dated yields remain sticky.
“But there is less steepening concerns as revenue from tariffs has in some way helped alleviate the market’s longstanding concerns over fiscal deficiency for now.
“In the short term, US dollar support may remain but we still stay negative on the dollar over the medium to long term based on a still steepening yield curve outlook driven by the short end,” it said.
The research house maintained its 2025 FFR cut outlook for -50 bps to 3.75% to 4%, a smaller anticipated cut compared to the earlier forecast of -75 bps.
“In the latest FOMC statement, the post FOMC press conference and “dot plot” indicate to us that the Fed is in no rush to cut the FFR,” Maybank IB added.
