- Bank Negara Malaysia maintained the Overnight Policy Rate (OPR) at 3.00%. Bank Negara Malaysia (BNM) stayed the course in the September Monetary Policy Committee (MPC) meeting, electing to maintain the OPR at the 3.00% level. The pause came as no surprise, given that it was largely in line with Bloomberg consensus (21 of 21 polled called for a pause).
- MPC statement saw increased mention of weak external environment, which spilled over to Malaysia’s 2Q23 economic growth. The MPC statement noted the improvements in core inflationary measures worldwide, although extra attention was devoted towards the deterioration in global trade. BNM raised issues such as the ongoing electrical and electronics (E&E) downcycle and anemic growth in China, which is pertinent given Malaysia’s status as an open, export-oriented economy. Notably, E&E products constitute ~43% of Malaysia’s exports as of Jul’23 while exports to China slowed on a YoY basis (Jul’22: +9.5%; Jul’23: +6.1%).
- Malaysian GDP growth declined in 2Q23, reflective of normalising growth narrative. Domestically, the normalization of Malaysia’s economy continued in 2Q23, with Gross Domestic Product (GDP) growth slowing to +2.9% YoY (1Q23: +5.6% YoY). While slower growth was expected, 2Q23 numbers came in below consensus amidst an increasingly fragile external environment and normalisation in consumption patterns. Nevertheless, we remain optimistic that domestic consumption will continue to drive Malaysian GDP growth heading into 2024, further bolstered by a resilient labour market.
- Malaysia’s inflation outlook saw marked improvement on headline and core measures. Malaysia’s inflation eased, moderating further in Jul’23. Headline CPI fell to 2.0% in Jul’23 (Jun’23: 2.4%), while the core measure of inflation was lower at 2.8% (Jun’23 3.1%). Coupled with the downside surprise in 2Q23 GDP, the recent improvements in inflation should allow Bank Negara Malaysia (BNM) the opportunity to maintain the Overnight Policy Rate (OPR) at the 3.0% level moving forward.
- Malaysian Government Securities (MGS) markets remains relatively insulated from global volatility. MGS yields stayed stable in the run up towards the September MPC meeting, as local fixed income markets continued to benefit from foreign inflows. Volatility in US fixed income markets have moderated, although we remain aware that resilient economic data could induce another rate hike from the US Federal Reserve. Domestically, investor focus is likely to turn towards the Budget 2024 tabling in Oct’23, which will hopefully flesh out the initiatives recently announced under the Malaysia Madani economy framework.
- OPR to stay at 3.00% for the remainder of 2023. Taking into consideration the deteriorating external environment and slower growth in domestic consumption, we expect OPR to stay at 3.00% for the rest of 2023 as downside pressures build on the Malaysian economy. Regardless, we expect Malaysian GDP growth to still remain within the range of 4% – 5% as per BNM’s guidance.
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