7 March 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 March’s Monetary Policy Committee (MPC) meeting, deciding to hold the OPR steady at the 3.00% level. The pause was largely anticipated by the market and continues to be in line with our view that the policy rate will be maintained at least until the end of the year. The central bank continued to view that the current OPR level and monetary policy stance remains supportive of the country’s economic growth and is in line with the central bank’s current growth and inflation assessment.
- The domestic economy expanded in 2023; albeit lower than expected. The Malaysian economy grew by 3.7% in 2023, falling short of the Ministry of Finance’s 4% – 5% target amidst a broad slowdown in the global trading activities which has caused Malaysia’s exports to contract for 10 consecutive months since March 2023. BNM expects growth to improve in 2024, driven by the recovery in exports and resilient domestic expenditure. We concur with the view as we observed improvements in Malaysia’s exports at the start of the year (exports grew by 8.7% YoY in January 2024) as well as the potential recovery of Electrical & Electronic (E&E) sector (which contributes ~40% of exports) amid the tech upcycle.
- Inflation remained low, reflecting the country’s stable cost and demand conditions. Headline and core inflation stood at 1.5% and 1.8% respectively in January 2024. Inflation is expected to remain modest in 2024, but we remain wary of the potential upside stemming from implementation of the government policies relating to subsidies and price control and hike in global commodity prices arising from the current geopolitical tensions.
- Ringgit is undervalued and does not reflect the current economic fundamentals and growth prospects. The ringgit fell at the start of the year, with USDMYR reaching as high as 4.805 in February 2024, the lowest level since 1998, at the height of the Asian Financial Crisis (AFC). The Government and Bank Negara Malaysia are taking explicit actions to support the Ringgit, by encouraging repatriation and conversion of foreign investment income by Government-Linked Companies (GLCs) and Government-Linked Investment Companies (GLICs).
Opus View
- We expect Bank Negara Malaysia to maintain OPR at the current 3.00% rate for the whole of 2024 which remains supportive of the local economic growth and align with the peak in global interest rates. We also 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) which will provide some support to the Ringgit and bolster our local bond market.
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