Some analysts predict that the Fed will raise interest rates 4 more times in the second half of 2022, already 2 times this year, and the next interest rate resolution will fall on June 14 and 15.
The Federal Reserve raises interest rates frequently, so what impact will this have on Malaysia? Here take a look at the U.S. interest rate hikes, the impact on emerging markets.
1. RM devaluation
Interest rate rise is a signal of currency strength, global funds will be attracted to move to the U.S. dollar assets, that is, depositors will exchange money from other countries with lower interest rates into U.S. dollars, moved to the United States local banks, U.S. dollar demand to see an increase, will also push up the exchange rate. The Fed’s two interest rate hikes have already led to a significant depreciation of the Malaysian dollar against the US dollar, with the lowest exchange rate of RM4.40 for US$1.
2. Foreign investment out of emerging markets
Higher interest rates in the US have triggered a massive withdrawal of funds originally parked in emerging markets to the US. This means that a rise in US interest rates will lead to overselling in the Malaysian stock market. Our stock market also retreated to around 1550 points after the Fed’s rate hike.
3. Increase the pressure of national debt service
Generally speaking, a rise in US interest rates will lead to a big rise in the US dollar, which leads to heavy pressure on debt servicing for countries that default on US dollar bonds.
4. import goods become more expensive
Stronger U.S. dollar, including the ringgit Asian currencies, including the fear of a depreciation war! To buy production equipment and raw materials in U.S. dollars will face greater challenges for the company’s operations. And international fuel prices, may also drive domestic consumption of oil, electricity, gas, and even brand-name bags, high-end clothing prices rise.
5. Commodities fall, gold is increasingly worthless
The strong rise of the dollar will impact the dollar-denominated commodities, including raw materials, minerals, metals, energy will be under pressure, market capital may be shifted from the higher nature of the safe-haven gold to the dollar, gold prices are bearish.
