Ringgit drops to two-month low as Fed minutes boost US rate hike bets

Malaysia's ringgit slid to the weakest level in two months on Thursday (May 19).
Malaysia's ringgit slid to the weakest level in two months on Thursday (May 19). PHOTO: BLOOMBERG

KUALA LUMPUR (BLOOMBERG) - Malaysia's ringgit slid to the weakest level in two months on Thursday (May 19)after minutes of the Federal Reserve's April meeting boosted speculation US policy makers will raise interest rates as soon as next month.

The text of the Fed Open Market Committee's April 26-27 gathering indicated officials see a rate increase next month as likely if the economy keeps improving.

The ringgit slid 0.6 per cent to 4.0725 per US dollar as of 9:34 am in Kuala Lumpur after depreciating to 4.0763, the weakest since March 21, according to prices from local banks compiled by Bloomberg.

The decline pared its advance this year to 5.4 per cent, still the biggest gain among Asian currencies after the yen.

Against the Singapore dollar, the ringgit also weakened. One Singdollar was trading at 2.9533 ringgit, up 0.38 per cent from its close of 2.9421 on Wednesday.

"The major driver that makes the ringgit low is the strengthened expectation of the Fed hiking rates in June," said Masashi Murata, a vice president at Brown Brothers Harriman & Co in Tokyo. "US Treasury yields rose after the FOMC minutes too, which depressed the ringgit."

All except one of 21 economists surveyed by Bloomberg predict Bank Negara Malaysia will keep its overnight policy rate at 3.25 per cent on Thursday. Governor Muhammad Ibrahim, who will chair the review for the first time since taking office on May 1, said last week monetary policy remains accommodative and supportive of economic activity.