The ringgit broke the psychological RM3 barrier against the US dollar for the first time in 13 years, as currency traders bet an interest rate hike is in the offing.
The ringgit opened against the US dollar at RM3.0038 before it touched RM2.991, a level unseen since October 9 1997, before closing the day at RM2.992.
"Policymakers may be prompted to resume raising interest rates in two weeks' time," Hong Leong Bank Bhd said in a research note to clients yesterday.
Bank Negara Malaysia (BNM) will meet to decide on interest rates on May 5.
RHB Research Institute Sdn Bhd said last week it expects the central bank to raise the statutory reserve ratio (SRR) of banks again by another one percentage point to 3 per cent at its next policy meeting but expects Overnight Policy Rate (OPR) to be raised from July onwards.
The SRR is a BNM requirement for banks to deposit a certain percentage of their loan assets with the central bank, which in turn helps regulate the amount of liquidity the banking system can use to extend loans to customers.
A 1 per cent rise in the SRR rate could drain some US$1.3 billion (RM3.9 billion) from the banking system. As such, an increase in the SRR rate would send a message to the financial sector, the Oxford Business Group (OBG) had said in February.
Last year, BNM raised OPR rates three times but has refrained from tweaking with the rates this year. The OPR is the benchmark interest rate which determines banks' lending rates to consumers.
AmResearch Sdn Bhd senior economist Manokaran Mottain also thinks that OPR will remain unchanged come May 5.
"The appreciation of the ringgit will take care of inflationary pressures felt currently. I don't think we need an OPR hike because inflation is more on cost-push," he said.
Inflation rose 0.6 per cent and 0.5 per cent on a month-on-month basis for January and February, respectively. In March, it rose by 0.1 per cent.
AmResearch has set a target of the ringgit reaching 2.97 to the US dollar in one to two months' time.
Pelikan International Corp Bhd president, executive director and chief executive officer Loo Hooi Keat told Business Times that the appreciation of the ringgit will affect business in general, though the company itself had factored in the continued weakening of the US dollar into its business.
"In two to three months, it (the US dollar) will find its position. The up-and-down movements of currencies such as euro and pound sterling are more worrying. We prefer something more stable for our business," he said.