24 January 2024
Monetary Policy Committee (MPC)
- 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 also Bloomberg consensus (21 out of 21 economists called for a pause). The central bank views that the current OPR level and monetary policy stance remains ‘supportive’ of the economy and is consistent with the inflation and growth assessment.
- The domestic economy expanded as expected in 2023; with optimism over the growth prospects in 2024. BNM noted that the 4Q2023 GDP advanced estimates (+3.4% YoY) provide affirmation that the overall growth in 2023 (estimated: +3.8% YoY) is largely in line with their expectations. However, we note that this is slightly lower than the target of 4% – 5% that was initially guided, mainly due to weaker external trade in 2023. Nevertheless, continued employment and wage growth, implementation of multi-year projects, increase in tourist arrivals and the recovery of Malaysia’s export will be the growth catalyst for 2024.
- Easing inflation amidst lower cost pressures. For 2023, headline and core inflation had moderated averaging 2.5% and 3.0%, respectively. Inflation is expected to remain modest in 2024 but risk to the upside stemming from changes in government policies relating to subsidies and price controls, global commodity prices and development in the financial markets.
- Recent ringgit weakness driven by external factors and not Malaysia’s fundamentals. The central bank continued to reassure that the recent MYR performance is primarily driven by external factors, and that the central bank will continue to ensure sufficient liquidity to support the orderly functioning of the domestic foreign exchange market. BNM added that the financial institutions continue to operate with strong capital and liquidity buffers, with domestic financial conditions remaining conducive to sustain credit growth.
- We expect Bank Negara Malaysia to maintain OPR at the current 3.00% rate for the whole of 2024 which is supportive of the local economic growth and align with the peak in global interest rates. We expect the US Fed to start cutting rates in 2H2024, which will narrow the yield differentials between US Treasury (UST) and Malaysian Government Securities (MGS). This will provide some support to the MYR and bolster our local bond market as foreign investors seek opportunities in emerging market assets.
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