FMT Interview: Impact of Fed rate cuts on the Rise of the Ringgit

The Federal Reserve cut interest rates by 50 basis points on the 18th of September, marking the first decrease since the early Covid pandemic, aiming to prevent a slowdown in the US labour market. Yet even before a Fed rate cut, the ringgit bounced back from hitting 25-year lows early this year to being one of the best-performing currencies in Asia in the past few months.

Benedict Weerasena, Research Director of Bait Al Amanah was interviewed by Free Malaysia Today on the potential impact of the US Federal Reserve’s (Fed) decision to cut interest rates, including the impact on the Malaysian ringgit which has been on the rise as well as Bank Negara’s upcoming monetary policy decision.

Weerasena explained that the key reasons for the turnaround of the ringgit, which has been undervalued for a long time,  include both domestic and external factors. Domestically, coordinated measures between BNM and the government such as the move to repatriate foreign earnings by government-linked companies (GLCs) and government-linked Investment Companies (GLICs) and also engagements with corporates, exporters and investors have born much fruit. Second, stronger economic fundamentals including robust economic growth at 5.9% in Q2 of 2024 and price stability with inflation at 2%, have propelled the positive sentiment among investors. As evidence, approved investments recorded a 13% increase in Q1 of 2024 as reported by MIDA. Third, external factors such as an anticipated end to the Federal Reserve’s restrictive policy stance and a potential recovery of the Chinese Yuan has also propped up the ringgit.

Weerasena further explained that BNM is likely to keep OPR unchanged for the rest of the year, as the prevailing monetary policy strikes a right balance between growth trajectory and price stability. This is regardless of the anticipated Fed rate cut. This rate cut will continue to encourage inflows due to narrowing yield differentials, further strengthening the ringgit.

For the full article, refer to Free Malaysia Today, written by Lee Min Keong.