KUALA LUMPUR (May 11): The ringgit appreciated against the US dollar in the afternoon shortly after Bank Negara Malaysia (BNM) announced a 25-basis-point increase in overnight policy rate (OPR) to 2% to contain inflation.
The local currency hit an intraday low of 4.3757 against the greenback compared with 4.3850 in the morning.
The ringgit closed at 4.3770 against the US dollar compared with Tuesday's (May 10) close at 4.3810.
The market generally did not expect the central bank to lift the OPR from a record low of 1.75% so soon considering the inflationary pressure is not as bad as in other countries although it is mounting.
Like many currencies in the emerging markets, the ringgit has been weakening over the past two months as the US Federal Reserve demonstrated its hawkish stance by raising interest rate by 50 basis points last week.
It depreciated to a two-year low of 4.3850 on Tuesday (May 10). Year to date the ringgit has lost 5.05% against the US dollar.
According to BNM's statement on Wednesday (May 11), BNM's move to raise the OPR was influenced by global inflationary pressures' sharp increase as well as taking into account that the sustained reopening of the global economy and improvement in labour markets continue to support the recovery of economic activity from the impact of Covid-19-driven movement restrictions.
The ceiling and floor rates of the OPR's corridor are correspondingly increased to 2.25% and 1.75% respectively, according to BNM.