Analysts expect the Ringgit to remain weak and Bank Negara to keep the overnight policy rate (OPR) at 3.25 percent in 2016, following the interest rate hike by the US Federal Reserve, reported The Sun Daily.
Notably, the Fed’s Open Market Committee (FOMC) increased the target range for the federal funds rate (FFR) to 0.25 to 0.5 percent.
With this, AmResearch expects the Ringgit, which on Wednesday closed at 4.3250 against the US dollar, to remain weak. Year to date, the Ringgit fell by around 23 percent against the US dollar.
Yesterday, the Ringgit fell 0.07 percent from the previous close of 4.3160 to 4.3130 against the US dollar, showed Bloomberg data.
“The Ringgit remains significantly undervalued despite limited risks to economic expansion as exports remained healthy. Exports grew by 16.7 percent in October while net trades stood at RM12.2 billion,” it said.
“In part, the weak global crude oil price and uncertainties domestically are ongoing challenges for the Ringgit. The domestic currency may appreciate as domestic issues resolve and interest rate in the US continues to normalise.”
Hong Leong Investment Bank Research, however, noted that the Ringgit enjoyed a period of stability since end-September, despite being pressured by lower oil prices.
“With the Fed liftoff done, we opine that the Ringgit will now be more influenced by oil price movement and domestic factors (namely 1Malaysia Development Bhd and BNM governor Tan Sri Dr Zeti Akhtar Aziz’s successor),” it said.
“For 2016, we expect the Ringgit to remain range-bound in most of 1H 2016, while a more noticeable appreciation towards RM3.80 to RM4.00 / US dollar will only materialise in 2H 2016 after confirmation of Zeti’s successor and bottoming of crude oil prices.”
As such, it expects the Fed to increase by 100bps next year through 25bps increases in alternate meetings.
MIDF Research revealed that the Fed’s median expectation for the interest rate year-end 2016 stands at 1.5 percent, or a 25bps increase at the end of each quarter in 2016.
It does not expect the hikes to have any significant shock to the market, given that they are in line with expectations.
“We maintain our Malaysia interest rate expectation at 3.25 percent for year-end 2016. Despite the fact that there will be a downward pressure on our interest rate level due to the expected slowdown in private consumption, we are currently expecting that the economy will be doing slightly better than the initial expectation of the government,” it said.
“As such, we maintain our OPR forecast for year-end 2016 at 3.25 percent and US FFR to end at 1.5 percent, reflecting 25bps increase at the end of every quarter in 2016.”