Kenanga Forecasts Extended Fed Rate Hold, Keeps Ringgit at 3.95

Kenanga Research expects the US Federal Reserve to maintain its current interest rate levels during the upcoming September meeting, despite a hawkish tone regarding inflation management recently adopted by Chair Kevin Warsh.

According to the original publisher, Warsh’s first Jackson Hole address as Fed Chair indicated a continued commitment to curbing price pressures, leading analysts to adjust their expectations for a monetary policy pivot. Kenanga Research now projects that the first interest rate cut by the US central bank will not occur until the second quarter of 2027.

The report notes that despite the pressure of inflation, the Fed remains cautious about premature easing. This stance has direct implications for Malaysia’s currency valuation, with Kenanga maintaining its forecast for the Ringgit at 3.95 against the US dollar.

This outlook suggests a period of prolonged stability in the currency market, which serves as a double-edged sword for Malaysians. For the average consumer and SME, a stable Ringgit at the 3.95 level may provide a predictable environment for importing goods and managing supply chain costs, which are currently influenced by varying fuel prices, such as the RON95 rates of RM1.99 under BUDI95 and RM3.82 for unsubsidised fuel.

However, for investors and businesses, the lack of an immediate US rate cut means that capital may remain skewed toward dollar-denominated assets. This could limit the upside for the local stock market as global investors continue to weigh the attractiveness of higher-yielding US treasuries against the economic growth potential of emerging markets like Malaysia.

The domestic economy currently displays resilience, bolstered by a 6.0 percent year-on-year real GDP growth in the most recent quarter. Furthermore, the labour market remains tight, with an unemployment rate of 3.0 percent as of May 2026, representing 513,400 unemployed individuals. This economic health provides a buffer against external monetary pressures.

When viewed alongside the July 2026 headline inflation rate of 1.8 percent, Malaysia appears to be managing domestic price stability relatively well. While the Fed's decision-making process is rooted in US-centric data, the trickle-down effect on Malaysia's monetary policy is significant, as Bank Negara Malaysia must carefully balance local growth incentives with the need to prevent excessive capital outflows.

Looking ahead, market participants will be monitoring US jobs reports and further statements from Chair Warsh for any signs of a change in sentiment. If the US labour market shows unexpected weakness, it is possible that the Fed could reconsider its 2027 timeline, though current forecasts remain firm.

What remains unconfirmed is how local businesses will adjust their long-term hedging strategies in response to the extended high-interest-rate environment. While Kenanga provides a clear forecast, the potential for volatility in the global economy means that the trajectory for both US policy and the Ringgit could shift should unforeseen inflationary shocks occur.