Fed’s rate hike decision further bolsters ringgit

KUALA LUMPUR – The ringgit extended yesterday gains to open higher against the US dollar today following the news that the US Federal Reserve’s (Fed) decision to increase its benchmark interest rate by 75 basis points, a dealer said.

At 9 am, the local currency appreciated against the greenback to 4.3970/3995 from Wednesday’s close of 4.4120/4150.

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the Fed increased its interest rate to between 1.50% and 1.75% at its Federal Open Market Committee (FOMC) meeting last night.

“There is more clarity now in Fed’s decision as they are going to laser focus on inflation. Based on their latest projection, the Fed Fund Rate is expected to reach 3.50% by end of the year which means another 175 basis points would be announced in the remainder of 2022,” he told Bernama

In 2023, the Fed Fund Rate could reach between 3.75% and 4.0%, while in 2024 it might go lower to 3.25% to 3.50%, he shared. 

Mohd Afzanizam said the pace of interest rate hike would slow down going forward and the Fed might want to pause rate hikes in 2023.

He said this should be a relieve to the market that the Fed is committed to bring its monetary policy stance into a restrictive zone which could lead to moderation in the inflation rate, thereby meeting its dual-policy goal of price stability and maximum employment. 

Following the Fed’s decision, he said risky assets such as the equity market cheered the decision with key barometer like S&P 500 rebounded 1.46% to close at 3,789.99 points while the two-year and 10-year US Treasury securities yielded higher by 24 and 19 basis points to close at 3.19% and 3.28%, respectively. 

ActivTrades trader Dyogenes Rodrigues Dininz said the latest Fed’s decision is the biggest one-time hike adopted by the US since 1994.

“Despite the hike, the USD fell against other currencies, partly because this was an expected move and therefore already priced in by the market.

“The upward move of the last few days had already resulted in a 6.01% rise and now a bearish retracement is more likely,” Diniz said. 

Meanwhile, the ringgit was traded mostly higher against a basket of major currencies. 

The local note rose against the Singapore dollar to 3.1697/1720 from Wednesday’s close of 3.1732/1758, strengthened versus the Japanese yen to 3.2750/2773 from 3.2815/2840, and appreciated against the euro to 4.5962/5988 from 4.6277/6309 previously. 

However, it went down vis-a-vis the British pound to 5.3542/3573 from Wednesday’s close of 5.3323/3360. – Bernama