With the US employment gains in July exceeding expectations, Fed rate hike in September is already a sure thing. With the Fed raising interest rates, Bank Negara Malaysia is also forced to follow suit.
The U.S. released more than expected new jobs in July, which indicates firm labor demand in the U.S. The Fed is generally expected to raise interest rates by 0.50% on September 21, although some experts predict a 0.75% rate hike.
If the Fed raises rates by 0.75%, the U.S. federal prime rate will be 3%, which is higher than our 2.25%. This forces our national banks to take a more aggressive approach to rate hikes in September to retain funds. The National Bank may continue to raise rates by 0.25% or even 0.50% in September.
If the National Bank raises rates by 0.25%, then the overnight policy rate (OPR) will be 2.50%. If the NB raises 0.50%, the Overnight Policy Rate (OPR) will be 2.75%. Whether the National Bank raises 0.25% or 0.50%, our overnight policy rate will still be lower than the U.S. federal prime rate.
National Bank will announce the results of its monetary policy meeting on September 8, when it will know the magnitude of the rate hike. The rate hike is certainly bad news for real estate and borrowers, but it is a plus for investors in time deposits and money market funds.
