KUALA LUMPUR: Standard Chartered Bank Malaysia (StanChart Malaysia) is projecting four rate hikes from the United States Federal Reserve (the Fed) this year.
Its chief economist for Asean and Southeast Asia Edward Lee said the potential hikes were coming on the back of the Quantitative Easing (QE) era, which had led to higher funding costs.
“In this environment, we expect the global economy to slow moderately in 2019 and further in the 2020s. We also expect the US Federal Reserve’s Open Market Committee (FOMC) to remain on a steady rate-hiking path until it becomes very clear that growth is slowing below potential.
“The big difference between 2018 and 2019 is that the Fed is now nearing the end of its tightening cycle. This means that regardless of the number of further hikes, they are likely to be ‘dovish hikes’,” Lee said at a briefing here today.
He shared that the base case of four FOMC hikes this year would be at 25 basis point per quarter.
On the local front, StanChart Malaysia expects Bank Negara Malaysia to keep rates steady this year as it focused on growth rather than inflation.
“We think that Bank Negara will be comfortable keeping the overnight policy rate unchanged at 3.25 per cent if gross domestic product (GDP) growth is between 4.5 per cent and five per cent, as we expect.
“Risks are tilted towards a rate cut, however, as we estimate that growth may be slightly below potential in 2019,” said Lee.
StanChart head of ASA FX Research Divya Devesh, meanwhile, expects a US dollar-ringgit at 4.25 in mid-2019 and 4.30 at end-2019, with a neutral outlook.
“The ringgit remains undervalued, but we see little catalyst for a recovery. Portfolio inflows remain weak amid fiscal concerns and further declines in Malaysia’s bond index weights,” he said, adding that the low prices for crude palm oil, a key export, had also not helped.
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