Rather than the rate hike itself, MIDF Research head Imran Yassin Md Yusof said, Malaysia will feel more of the impact it will have on the US economy. The United States is a key trading partner of Malaysia.
The US Federal Reserve (Fed) announced the rate hike, the highest since the turn of the millennium, yesterday.
“The US interest rate hike is expected to ease inflation, but this may also result in slower economic growth in the United States,” Imran Yassin told FMT Business. “Indeed, the Fed has revised its growth outlook lower than the previous estimate.”
Nevertheless, he pointed out, the recent weakness in the global market could be attributed to investors pricing in a hard landing of the US economy.
“Since the Fed is taking a hawkish stance to engineer a softer landing, the move has brought some relief in the market as reflected in Wall Street’s performance as well as the domestic market following the announcement,” Imran said.
He also believes Malaysia will be less affected as it is in a recovery mode and this is supported by the high commodity prices, namely crude palm oil and Brent crude, which may even help with the ringgit’s recovery. Hence, MIDF has not changed its GDP outlook for 2022.
“As for the fund flows, it is possible that we may see a return to net inflows by foreign investors once the dust settles as future rate hikes will have already been priced in,” he added.
At the fundamental level, Inter-Pacific Securities head of research Victor Wan said, the rate hike could result in an outflow as investors chase higher returns, but in reality it is not so clear cut.
Wan expects demand in the US economy to be lower moving forward, which will affect Malaysia’s exports. However, he said, this will take time to materialise.
“For now, the impact on the country’s economy is relatively neutral,” he said.
As for the ringgit, Wan pointed out that Malaysia has strong exports that will help it weather the impact of the rate hike.
“We may even see the currency recover later in the year as the country’s economy is buoyed by strong domestic demand,” he said.
From the previous day’s close of 1,459.05 points, the Bursa KLCI ended the morning session 0.63% or 9.22 points higher at 1,468.27 points.
Meanwhile, at noon today the ringgit stood a 4.399 against the greenback, a 0.4% improvement from the previous close of 4.418.
In his opening statement, US Fed chairman Jerome Powell explained the rate hike is essential to bring inflation down to sustain strong labour market conditions.
“The surge in prices of crude oil and other commodities that resulted from Russia’s invasion of Ukraine is boosting prices for gasoline and food and is creating additional upward pressure on inflation. And Covid-related lockdowns in China are likely to exacerbate supply chain disruptions,” he added.