BANK NEGARA TO HIKE INTEREST RATES AS INVESTORS DUMP GOVT BONDS? RINGGIT RALLIES TO LATE SEPT HIGH AGAINST US$ ON TALK OF ‘HAWKISH SHIFT’

KUALA LUMPUR – The ringgit rallied against several key currencies including the US dollar after Bank Negara Malaysia (BNM) signalled a possible interest rate hike.

BNM said given the strength of the global and domestic macroeconomic conditions, the Monetary Policy Committee (MPS) “may consider reviewing the current degree of monetary accommodation”.

“This is to ensure the sustainability of the growth prospects of the Malaysian economy,” it said in a statement which was released at 3pm. This was the last meeting for 2017.

This was the strongest signal ever given by the MPS in recent months as it retained the Overnight Policy Rate at 3%.

The statement said for Malaysia, economic growth has become more entrenched. Both the domestic and external sectors continue to register strong performance.

“Moving into 2018, headline inflation is projected to moderate on expectations of a smaller effect from global cost factors. Nevertheless, the trend of headline inflation will be dependent on future global oil prices which remain highly uncertain. Underlying inflation, as measured by core inflation, will be sustained by robust domestic demand,” it said.

This saw the ringgit gaining strength against the currencies, climbing 0.37% against the US dollar to 4.2135 – the strongest since Sept 26.

The local unit jumped 0.43% against the pound sterling to 5.5302. It gained 0.18% versus the Singapore dollar at 3.0953 and advanced 0.33% against the euro at 4.8877.

Bloomberg reported the outflow from Malaysia’s sovereign bonds may be about to accelerate.

It reported the prospect of a  first hike since 2014 pushed down bonds, which have already been languishing as foreign funds have cut holdings in seven of the  first 10 months of the year.

“It is a hawkish shift, but the hike may not necessarily come as soon as the next meeting,” said Winson Phoon, a fixed-income analyst at Maybank Investment Bank Bhd in Kuala Lumpur.

“Yields will reprice higher, especially the front and belly sector of the curve.”

The yield on three-year government debt jumped five basis points to 3.54 percent after the statement.

– ANN