Federal Reserve (FED) has raised interest rates twice in just under 6 months and has now raised rates by 75 basis points. The announcement that the Fed will announce a further 50 basis points of individual rate hikes after the next 2 meetings has driven the US dollar strongly higher.
According to data released by Bank Negara on the exchange rate between the RM and foreign currencies, the exchange rate between the RM and the USD was 4.3725, which is the lowest level since April 2020. The exchange rate between the ringgit and the Singapore dollar was 3.1561.
A rate hike by the Fed will lead to an accelerated flow of US dollars back to the US, while emerging markets will experience a shortage of US dollars, which will lead to further strengthening of the US dollar. If the Bank Negara chooses to raise interest rates, this will help stabilise the RM, but a rate hike by the Bank Negara will also hit the country’s newly recovered economic activity.
Bank Negara is not expected to announce an interest rate hike until the second half of the year.
