The ringgit has eased against the US dollar. Continued sell-off was largely due to strong US retail data with propelled bets on the Federal Reserve (Fed) hiking interest rates further.
The ringgit dropped to 4.4850/4.4895 on 28 February versus the greenback from previous day’s close of 4.4755/4.4805.
The higher US yields continued to move like a wrecking ball through local assets after a “very strong” January US retail sales print compounded a still sticky US inflation outlook.
The markets are awaiting US data that include weekly initial jobless claims, January housing starts, and Producer Price Index. The Fed Funds rate could reach a peak of 5.25% to 5.50% due to the lag effects of current US interest rate hikes working their way through the economy.
The ringgit ended mixed against a basket of major currencies. The local unit strengthened against the Japanese yen to 3.2799/3.2835 from 3.2816/3.2855 at close of Tuesday,
28 February 2023 and depreciated against the British pound to 5.4152/5.4206 from 5.3576/5.3636 previously. However, it fell vis-a-vis the Singapore dollar to 3.3247/3.3285 from 3.3162/3.3204 and slipped versus the euro to 4.7572/4.7260 from 4.7212/4.7265.
We have little choice but to raise OPR to 3.0% from the current 2.75%. Why? We will suffer from higher imported inflation, if we choose not to do otherwise. This is not rocket science but common sense. When U.S. Fed Fund Rate is double our OPR, we are certainly under pressure on both exchange rate and elevated inflation. Before Covid, our OPR was
3.00-3.25%. So, why can’t we do that? In addition, external debts are simply higher due to exchange rate translation.
References:
Ringgit eases to 4.40 level vs US dollar, FMT, 16 February 2023
Ringgit continues downtrend against US dollar close, Bernama, 28 February 2023
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