16 December 2015

US Fed Rate Hike: Good or Bad? How is it going to impact Malaysia?

Everyone are anxiously waiting for the outcome of Federal Reserve of US (FED) tonight. If the rate was really raised, it will be the turning point of the interest rate direction. Should FED make the decision to hike it, is it good or bad for the global economy? And most importantly, how is it going to impact Malaysia?



It's not news anymore since we're talking about this FED rate hike issue one and half year ago. But, the fact is, it does really has a great impact to the world economy, and Malaysia cannot spare from it either.

Generally, below is the 3 possible outcome of 16th Dec 2015 and the possible reactions of global markets:

  1. Unchanged
    Although this is unlikely this round, yet FED still has the chance to remained unchanged and keep it for the next round. While most of us already factored in the effect of raising interest rate, this outcome would make the whole global markets to react positively (although it maybe short lived until the next FED meeting). Merry Xmas and happy new year.

  2. Up 0.25 basis points (bps)
    This is the most popular and expected outcome. Since it's already expected by all of us, including all investors and fund managers, the reaction from this outcome would be muted. Meaning, it's business as usual until the next signal on whether how many more hikes in year 2016.

  3. Up more than 0.25 bps
    This is possible also, depends on how confident was FED regarding the US economy is doing currently. Based on the US economy data for past months, it's convincing enough to raise rate. But, how much should be raised it's still in guessing mode. So, if the outcome is more than what most of us are expecting, it will be a 'cautiously pessimistic' mode for the global markets. No more Merry Xmas for investors.


Anyway, either up or unchanged, we can't deny that Malaysian currency MYR will be the worst performing currency in year 2015. But, the impact from tonight's FED outcome would determine whether the worst is over or not for us. For scenario 1 and 2, it's good or neutral for MYR. However, it will be a nightmare again if for scenario 3.



Then, can we revert the situation ???

Yes, if Bank Negara Malaysia decided to raise our OPR rate by following the footsteps of FED. Then, it could strengthen MYR abit or at least minimized the impact from FED rate hike. However, by doing so, BNM's action risks jeopardizing the local economy growth while trying to put a stop on capital outflow. It's a difficult decision to make.


Good Luck.

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