KUALA LUMPUR, Sept 19 — Bank Negara Malaysia (BNM) is expected to hold the overnight policy rate (OPR) at 3.00 per cent despite another possible 50 basis points (bps) rate cut by the United States Federal Reserve (US Fed) this year, said Rakuten Trade Sdn Bhd’s head of research Kenny Yee.
If the US Fed announces more rate cuts, bringing the total to 100 bps over the next two meetings, this could push the US 10-year Treasury yield to around 3.2 to 3.3 per cent.
When compared to Malaysian Government Securities (MGS) yield, which is currently around 3.7 to 3.8 per cent, the spread will be about 56 to 60 bps.
“If the spread widens to around 80 to 100 bps, that could instigate or give BNM some buffer for a relook,” he told a virtual media briefing on the fourth quarter (4Q) outlook today.
Yee highlighted if the US Fed were to lower interest rates significantly, it would create room for BNM to lower rates by at least 25 bps in 2025 if needed.
“There were comments that the US Fed may be getting worried about the US economy and the low hiring process. That is why they are more aggressive in this round,” he said, adding that the US national debt is also ticking away to reach US$35 trillion (RM148.3 trillion) now.
“Based on the current United States (US) interest rate, they are looking at interest payments of over US$1 trillion (RM4.23 trillion). How are they going to finance this?
“Previously, they had Japan, China, and others to buy US bonds to finance the national debt. But of late, China has been selling down their holdings to US$770 billion (RM3.26 trillion) from its peak of US$1.4 trillion (RM5.93 trillion) in November 2013,” he said.
Despite these worries, Yee said the bond, equity and currency markets like Bursa Malaysia and the ringgit are expected to gain traction.
He noted that the ringgit is normalising and likely to strengthen to RM4.10 - RM4.20 against the greenback by end-2024 on easing US interest rates.
“With this low-interest environment globally, the ringgit is certain to revert to its rightful level. So, if Fed chair Jerome Powell decides to have another (two 25 bps cut in November and December 2024), the ringgit may strengthen to below RM4 level,” Yee said.
The US Fed announced a bold 50 bps rate cut yesterday, emphasizing policymakers' commitment to maintaining low unemployment now that inflation has eased.
The move brings the Fed Funds Rate to 4.75 per cent - 5.00 per cent from 5.25 per cent - 5.50 per cent.
— Bernama
