By G. Sharmila
The US Federal Reserve rate hike was in line with analysts’ expectations, with some expecting a marginal impact on the market from the rate hike, while others were cautious on the market outlook.
MIDF Research in a report today said it believes there should be only marginal impact on the market from the meeting. “There is almost nothing surprising in the recent FOMC meeting, hence there should be no significant movement in the market post-liftoff decision. However, the more important thing to note is how the US economy will be doing after the first increase.
“We are of the opinion that the US economy will continue to strengthen either in line, or better than the Fed’s expectation (particularly with regards to the interest rate). Any volatility without any significant change in the US economy will have nothing to do with the US monetary policy, but is more likely be caused by the volatility in the commodity price and emerging market economy,” the research house opined.
MIDF maintained its Malaysia interest rate expectation at 3.25% 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. As such, we maintain our OPR forecast for year-end 2016 at 3.25% and US fed funds rate to end at 1.50%, reflecting 25 basis points increase at the end of every quarter in 2016.”
Andrew Colquhoun, Fitch Ratings’ head of Asia-Pacific sovereigns, believes the rate rise was well-signalled and in line with Fitch’s expectation. However, he also said that the real uncertainty remains how quickly rates rise, and to what peak.
“There is still a significant wedge between where the Fed is telling us it sees rates going and what the market is pricing in. An out-turn closer to Fed guidance would be a substantial shock for a region where private sector debt levels have risen rapidly and where capital flows have already started to reverse. This uncertainty puts a premium on credible and coherent policy responses by authorities in buffering sovereign credit profiles,” he said in a statement today.
HLIB Research, which also said the rate hike was within its own and market expectations, was less optimistic about the US dollar. “We expect the US$ dollar strength to struggle in the near term as global capital flows may have already worked to the extreme (flocking into US dollar assets before the liftoff).
“Empirical evidence does not suggest that the Fed liftoff (ie rate hike cycle in Jun-04) will result in a stronger US dollar,” it opined in a report today.
Closer to home, HLIB noted that the ringgit has enjoyed a period of stability since end-September, despite being recently pressured again 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 (ie 1MDB and Zeti’s successor),” it said.
“For 2016, we expect the ringgit to remain range-bound in most of 1H16 while a more noticeable appreciation towards RM3.80-RM 4 per US dollar will only materialize in 2H16 after the confirmation of Zeti’s successor and the bottoming of crude oil prices,” MIDF added.
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