KUALA LUMPUR, April 30 — After two weeks of prolonged volatility, the ringgit is expected to stabilise next week due to prospects of a sharper interest rate hikes by the US Federal Reserve.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid believes a better ringgit movement is also likely as it is already at an oversold position.

“Given that, the local unit may linger at the 4.34-4.35 level against the greenback,” he told Bernama.

Mohd Afzanizam said the focus now would be on general consensus and how the Federal Open Market Committee (FOMC) members would want to steer the US economy, knowing that if they go overboard, it might derail economic recovery momentum.

The FOMC will reconvene next week and a 50bps hike is likely, according to market sentiments.

“We expect the Fed to maintain their hawkish stance.

“The question now is how soon the Fed would normalise its benchmark rate towards its neutral rate, a rate that is contractionary or expansionary to the economy,” he told Bernama.

Mohd Afzanizam said it seems the neutral rate could be somewhere around 2.0-2.5 per cent based on Atlanta Federal Reserve president Raphael Bostic’s recent interviews.

At home, Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate (OPR) at 1.75 per cent at the upcoming May 10-11 Monetary Policy Committee (MPC) meeting.

The central bank is believed to be observing the first quarter economy data scheduled to be released on May 13.

On Thursday, Bank Negara Malaysia governor Tan Sri Nor Shamsiah Mohd Yunus said Malaysia will see some price increases given the depreciating ringgit as imports become more expensive but it won’t lead to hyperinflation in Malaysia.

She said there were several policies in place that would help mitigate the inflationary pressures such as the current fuel price ceiling, which has been in place since 2021 and had kept prices stable amidst the exchange rate and oil price fluctuations.

Nor Shamsiah said although inflation is picking up, they are currently mostly supply-driven.

“However, we are closely monitoring if these higher input costs will then further affect a broad range of goods and services, especially if these price pressures are persistent as people start spending again,” she said.

On a weekly basis, the ringgit was lower against the greenback at 4.3520/3570 on Friday, compared to 4.3230/3270 a week earlier.

The ringgit reached the 4.36-level against the US dollar on Thursday, a level last seen in April 2020.

Besides concerns over inflation and interest rates, the local unit was also affected by possible further lockdowns in China, Malaysia’s largest trading partner, amid growing Covid-19 cases in the country.

The ringgit, however, was traded higher against a basket of major currencies on a Friday-to-Friday basis.

The ringgit rose against the Singapore dollar to 3.1543/1584 from 3.1633/1667 a week earlier, increasing vis-a-vis the Japanese yen to 3.3392/3433 from 3.3652/3686.

The local currency improved against the British pound to 5.4652/4715 from 5.5641/5693 last week and strengthened versus the euro to 4.6018/6071 from 4.6710/6753 previously. — Bernama