SHAH ALAM - Bank Negara Malaysia (BNM) is expected to increase the Overnight Policy Rate (OPR) by 25 basis points ahead of the Monetary Policy Committee (MPC) meeting tomorrow to 3.25 per cent.
OctaFX, in a statement today, informed that the move was made to support the capital market and stabilise the exchange rate of the United States dollar (US) with the Malaysian ringgit (RM).
"Following the hawkish rhetorical reforms from the US Federal Reserve, it has set the stage for ringgit weakness, and the current US interest rate is 5.25 per cent compared to 3 per cent in Malaysia.
"When the US offers a higher outcome, foreign entities tend to convert their Malaysian assets into US dollars and shift investments to the US market.
"If BNM leaves the rate unchanged, the fall of the ringgit is expected to happen faster, which could reach the highest level in several years, which is 4.75," it said in a statement.
OctaFX further explained that the MPC stated that core inflation has been on a downward trend for the past few months due to the moderate cost factors influence and expects that it will remain high due to sustained demand.
At the same time, OctaFX informs investors that external factors also affect the domestic financial market as investors adopt a risk-averse approach due to concerns about a potential rate hike by the US Federal Reserve.
The statement also said that recovery is expected to be slower than China's expectations, which resulted in the ringgit depreciating by 3.4 per cent against the US dollar.