On: May 10, 2024 In: Blog, Fixed Income, Knowledge Centre

9 May 2024

Monetary Policy Committee (MPC)

  • Bank Negara Malaysia maintained Overnight Policy Rate (OPR) at 3.00%. Bank Negara Malaysia (BNM) stayed the course in May’s Monetary Policy Committee (MPC) meeting, deciding to hold the OPR steady at the 3.00% level. The pause was widely anticipated by the markets and continues to be in line with our view that the policy rate will be maintained for 2024.
  • Global interest rates to remain high for longer. The MPC anticipates sustained global economic growth supported by favorable labor market conditions and moderating inflation in some advanced economies. This outlook is reinforced by the strengthening of global trade, driven by the tech upcycle. Additionally, the slower pace of disinflation, particularly in the US, will increase the likelihood of interest rates remaining high for longer. The MPC remains cautious of the downside risks to growth which includes geopolitical tensions, elevated inflation, and financial market volatility.
  • Higher economic activities in 1Q2024; moderating inflation. The MPC acknowledged increased economic activity in 1Q2024, driven by resilient domestic expenditure and a recovery in exports. This is consistent with the advanced 1Q2024 GDP growth estimates of 3.9% YoY (4Q2023: 3.0% YoY), which was underpinned by the stronger growth in the services sector and turnaround in manufacturing activities. On a separate note, inflation is expected to remain moderate in 2024, with headline and core inflation projected to average between 2.0% – 3.5% and 2.0% – 3.0%, respectively, after incorporating the potential impact of subsidy rationalization.
  • Ringgit does not reflect the current economic fundamentals and growth prospects. The Government and Bank Negara Malaysia continues to take 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). Additionally, the MPC also emphasized that corporate engagements have gained further traction, suggesting additional support to alleviate pressure on the Ringgit.

Opus View

  • We expect BNM to maintain OPR at the current 3.00% rate for the whole of 2024. The recent Monetary Policy Statement (MPS) also implies that the central bank does not intend to tighten monetary policy to address ringgit volatility, remarking that ‘BNM will continue to manage the risk arising from heightened financial market volatility’ and ‘the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects’.
  • While the UST has repriced the delayed and smaller rate cuts in the last 2 months, the MGS market movement has been muted with only larger movement in the month of April. However, we believe that the significant adjustment in the UST is done, with markets now pricing only 50 bps rate cut. While we do not discount the possibility of no rate cut in 2024, and there may still be some volatility, the risk is now lower. Furthermore, the local bond market continues to be supported by local institutions and government link institutions.

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