US rate hike must happen soon to reduce market volatility

Interest rates hike by the United States Federal Reserve (Fed) must happen this year as the uncertainty on the timing of the hike is causing volatility in regional markets. Responding to a comment by Bank Negara Malaysia governor, Tan Sri Dr Zeti Akhtar Aziz, that the Fed should act soon on the rates hike, ForexTime Ltd chief market analyst Jameel Ahmad said Zeti's comments were probably based on concerns that the Fed would not raise interest rates at all this year. "I also agree that it needs to happen this year otherwise there is a risk of severe US dollar profit-taking in the financial markets. "In my view, the Fed will not be too aggressive when it does come to raising interest rates, and the pace of interest rate increases are likely to be slow and gradual," he told Bernama. Zeti made the comments in an interview with Bloomberg in Washington last Saturday. Jameel said the US interest rates hike, expected to start in September, would likely be slow and gradual to mitigate further reduction in its retail sales data. He said the ringgit's weakness against the US dollar had largely been priced in for now, possibly indicating that the worst could be over for the local note. Meanwhile, the Employees Provident Fund Chief Executive Officer Datuk Shahril Ridza Ridzuan also concurred with Zeti's stance on the US interest rates hike. "We are seeing volatility in the markets that we have a presence in today because of the uncertainty around the US interest rates. "From our point of view, hopefully over time, the markets will become less volatile and we will have the opportunity to see rising interest rates because low rates is a problem for all retirement funds around the world," he said.