Will Malaysia's central bank increase interest rate tomorrow?

There is little change in the ringgit, which is near its lowest level in more than a year, ahead of Bank Negara's scheduled interest rate meeting tomorrow.

The market is expecting the central bank to hold its benchmark overnight policy rate (OPR) to shore up the local currency.

DBS Bank yesterday said the odds of another rate cut by Bank Negara was diminishing on the back of the ringgit's recent sharp decline.

Meanwhile, MIDF Research, in a recent report, has adjusted its OPR assumption to 3 per cent from 2.75 per cent previously, with a view that Bank Negara would hold its interest rate at current levels for the rest of the year.

Bank Negara had lowered its benchmark rate by 25 basis points to 3 per cent in July. Since then, the ringgit has depreciated by 11 per cent against the US dollar.

The decline in the exchange rate had accelerated this month after Donald Trump won the US presidential election. At 4.42 against the US dollar yesterday, the local currency was hovering near levels seen in September last year.

Other currencies were also down against the strong US dollar.

"Diverging monetary policy has boosted the US dollar globally," DBS said.

The US dollar extended its record gains against the euro, rising for 10 straight days, and staged the strongest rally against the yen in years on speculation of faster interest rate increases on Trump's reflationary policies.

"Treasury yields have surged in the past two weeks on expectations that fiscal spending by the new Government will boost inflation and trigger tighter monetary policy in the US," DBS said.

Recent surveys among economists by Bloomberg showed that the prospect of the US Federal Reserve raising the interest rate next month is almost a sure bet.

In contrast, the rest of the world is likely to adopt an easier monetary policy as it struggles with sluggish growth.

"The trend of a stronger US dollar, higher US rates and outperformance of US equities versus equities elsewhere seems persistent for now," Citi Research said in a note.

The so-called "Trump Boom", which reflects investor confidence regarding the US economy going forward, had propelled major stock indices in the US to all-time highs.

At the same time, global investors are pulling out from other markets. Foreign investors sold a net amount of RM1.14 billion (S$425 million) worth of shares on Bursa Malaysia last week.

"With the continuous attrition, foreign investors have now become net sellers thus far," MIDF Research said.

Sentiment on the local bourse, however, got off to a positive start this week, with the FBM KLCI up 3.38 points, or 0.2 per cent, to 1,627.28 points yesterday.

Elsewhere in Asia, the mood was mixed, with sharp gains in Japan and China stock markets tampered by declines in South Korea, Singapore, Indonesia and India.