22 January 2025
Monetary Policy Committee (MPC) Meeting
- Bank Negara Malaysia maintained Overnight Policy Rate (OPR) at 3.00%. Bank Negara Malaysia (BNM) stayed the course in the January’s 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 our view and Bloomberg consensus (24 out of 24 economists called for rates to be maintained). The central bank views that the current OPR level and monetary policy stance remains ‘supportive’ of the economy and is consistent with the current inflation and growth prospects. The yield curve remained relatively unchanged following the MPC meeting.
- The domestic economy expanded as expected in 2024 and expected to be sustained in 2025. BNM maintains its view for sustained economic activities in 2025, driven by resilient domestic demand from both the consumption and investment fronts. This will be supported by the progress of multi-year projects in both the private and public sectors, continued realization of approved investments, as well as the ongoing implementation of catalytic initiatives under the Budget 2025.
- Inflation is expected to remain manageable, projected to range between 2.0% – 3.5%. Going into 2025, inflation is expected to remain manageable, amid the easing global cost conditions and the absence of excessive domestic demand pressures. The inflation rate averaged around 1.8% in late 2024, primarily due to subdued transport costs and stable food prices. However, upcoming policy changes such as the RON95 subsidy rationalization and expanded sales and service tax coverage are expected to exert an upward pressure on prices.
- Ringgit performance will continue to be driven by external factors. The narrowing interest rate differentials between Malaysia and advanced economies continue to favor the ringgit. While global policy uncertainties may lead to occasional market volatility, Malaysia’s positive economic outlook, domestic structural reforms, and ongoing efforts to attract foreign investments are expected to provide steady support for the ringgit.
Opus View
- Heading into 2025, we continue to anticipate that the trajectory for rate cuts to continue globally in view of an expected global growth slowdown, although the speed and quantum remain uncertain. We expect OPR to stay at 3.00% at least until 1H2025, as inflation remains manageable amid a robust domestic economy. The reduction of Government bond supply and contained inflation are positive factors for the Malaysian sukuk market as we expect continued demand from local institutions.
- Hence, we opine that the domestic sukuk market remains an attractive asset class for investors seeking to hedge against potential volatility in the equity market in 2025, and to lock in higher yields. We continue to see a low risk-reward benefit from going on longer duration, as the yield curve continues to remain flat. Hence, we widened our target duration range on the lower end to between 4– 6 years, while focusing on high quality corporate sukuk for yield pick-up.
Disclaimer
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