Wednesday 24 April 2024

Interest Rate, Exchange Rate and GDP Growth

 BNM’s point of view on its Monetary Policy measures for 2024 are shown in info-graphics below:

Comparative Policy Rate Change and Impact on MYR Exchange Rate

The above two charts relate to interest rate change by Malaysia vis-a-vis with other nations and its impact on MYR. Only against Japan and China have we had positive development on exchange rate. Otherwise we have failed to move in tandem with others, especially the U.S.

The above charts do not incorporate inflation. The real differentials are important and on that score we are negative to the U.S. real rate [approx. 2.05 (U.S.) to 0.5% (for Malaysia)], which explains fund outflow!

Gradual recovery of the ringgit in 2024?

The above is really predicated on monetary policy easing in the U.S. For so long as the Fed believes inflation is still persistent and sticky, aggressive rate cuts will not happen. That is not good for MYR.

Is the currency undervalued?

BNM believes currency is undervalued. And what does that mean? Should it be RM4.40 to 1 USD? We are left to make our conclusions. The fundamentals are positive but it is the perception of speculators, traders, investors that really matters.

Reference:

BNM Annual Report 2023




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