The Federal Reserve announced another interest rate hike, so what impact will this have on Malaysia? Here’s a look at the U.S. interest rate hike, the impact on emerging markets.
1. Devaluation of the Malaysian currency
The interest rate hike is a signal of a stronger currency, global funds will be attracted to transfer to US dollar assets, that is, savers will change their money from other countries with lower interest rates to US dollars and move to US domestic banks, and the demand for US dollars will see an increase, which will also push up the exchange rate.
2. Foreign capital withdrawal from emerging markets
Higher U.S. interest rates will trigger a large withdrawal of funds originally parked in emerging markets. This means that a US interest rate hike will lead to an oversold Malaysian stock market.
3. Increased pressure on national debt service
In general, a US interest rate hike will lead to a significant rise in the US dollar, which will result in heavy pressure on debt service for countries that default on their US dollar bonds.
4. Imported goods become more expensive
With a stronger dollar, Asian currencies, including the ringgit, fear a devaluation war! This will make China’s imports more expensive. Purchasing production equipment and raw materials in US dollars will make the company’s operations more challenging. The rise in international oil prices may also drive up domestic consumption of oil, electricity and gas, and even the price of designer bags and high-end clothing.
5. Commodities fall, gold is increasingly worthless
The strong rise of the dollar will hit the dollar-denominated commodities, including raw materials, minerals, metals, energy will face pressure, market capital may shift from the safe-haven nature of gold to the dollar, bearish on gold prices.
