Bank Negara has now raised rates three times this year by a total of 75 bps, after earlier increases in March and May.
It cut rates by 150 bps during the financial crisis, from 3.5 to 2 percent.
Bank Negara was the first central bank in emerging Asia to raise rates after the global financial crisis.
Malaysian economy grew at a blistering pace of 10.1 per cent y.o.y. in the first quarter.
On Monday, the PM indicated that economic growth might slow in the second half of the year because of external factors.
The speech marked a change of tone for the PM, who has been making fairly bullish noises about the economy. It conflicted with the government’s own full year forecast for the economy, released last month, which predicted growth of 6 per cent - up from an earlier forecast of between 4.5 and 5.5 per cent.
PM’s change of tone is political one as his economic reform program’s the New Economic Model is stalling as a result of opposition from the ultra conservatives in his party, UMNO.
While the developed countries are keeping low interest rates, any increase of policy rate make Malaysia's interest rate spread widened and may attract more hot money to flow into the country.
An interest rate hike also about the appreciation of ringgit.
This week, USD/MYR slide to our expected get support at 1.3189. The appreciation of the ringgit is more due to weakness in US Dollar as seen in the euro and the cable. The effect of Bank Negara decision to raise rate was quite muted.
This week the local stock market was quite bullish from Tuesday onward while the USD/MYR only registered a meaning full push downward on Thursday.
The recent bullish move of the local burse was not accompanied by increase in volume indicative of less participation by foreigners.
The MPC (Monetary Policy Committee) decision to raise the OPR could also be seen to invite hot money to park in the share market and drive share prices upward, creating a scenario of prosperity in the share market and the economy as a whole. Giving PM changing view on the economy, a bullish stock market at least politically give him a breathing space.
For next week, USD/MYR is still under the descending channel and MACD in the negative territory, the pair has a bearish tone. Stochastic is below 20 but showing no signed of penetrating that level yet.
Support is at 3.18 and penetration of that level the next support is at 3.172. Resistance at 3.218 with the pair inability to overcome that level the bearish trend is still intact. The next resistance is at 3.252.
