KUALA LUMPUR: The US’ Federal Reserve’s further rate cuts may be a boon to the ringgit, and foreign funds expected to make a bigger comeback to Bursa Malaysia, said economists.
“Our ringgit could strengthen as a result of Federal Reserve's decision to cut interest rates further.
“The rates will no longer be attractive, causing fund outflows from their country and inflows to other countries such as Malaysia,” said associate professor and business development manager Dr Ahmed Razman Abdul Latiff.
He said the rates cut move in theory would grow the US economy as it promotes domestic spending.
“It will also boost the domestic market, but imports of goods into the US will be expensive as the US dollar will drop and could adversely affect Malaysian’s business,” he said.
But this allows Malaysia to save on the cost of imports, while increasing our current account surplus to a more positive level, Razman added.
Some economists have expected the US’ Federal Reserve to make two more rate cuts in September and December after making its first 25 basis points reduction in 10 years on Wednesday.
It was the first interest rate cut since September 2007 in a move to resuscitate the economic activities during the Sub Prime Crisis in 2007.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the rate cut in July was not enough to uplift the ringgit.
He said the 25 basis points cut and a slightly dovish remark by Federal Reserve’s chair seemed to have disappointed the market.
“US Dollar Index has gone up to 98.5 points yesterday, giving 2.5 per cent increases compared to end of June. Therefore, USD/MYR would be on a weaker bias,” he said.