Executive Summary

In the final scheduled Monetary Policy Committee (MPC) meeting for 2023, Bank Negara Malaysia (BNM) kept the benchmark Overnight Policy Rate (OPR) unchanged at 3.00% as expected.

OPR unchanged at 3.00%. The MPC statement pointed out that growth in 2024 will be driven mainly by resilient domestic expenditure, with some support emanating from the expected recovery in E&E exports. Continued employment and wage growth remain supportive of household spending. Inflation is expected to remain modest in 2024. Overall, the current monetary policy stance is assessed to be supportive of the economy.

Rising domestic bond yields is influenced by sell-off in US Treasuries rather than a manifestation of escalating inflation expectations. The repricing in global rates market on “higher-for-longer” theme sent the real 10-year yield 209 bps higher since January this year. We think that current 10-year MGSinflation spread is hovering at attractive point if one agrees to the view the US Fed to start cutting rate by middle of 2024.

Status quo monetary policy until the end of 2024. Our baseline view is for OPR to remain unchanged at 3.00% until the end of 2024 on the back of 4.5% GDP growth expectation and average inflation target of 3.0%. As the country continues to embark on subsidy rationalisation exercise, any alteration to our inflation outlook hinges largely on any unexpected outcomes with regard to this matter. For now, we argue our OPR status quo case along the following factors:

• Domestic inflation levels do not indicate the need for rate hike.
• Sustaining domestic demand is crucial to ensure 2024 GDP growth targetremains intact.
• Monetary policy is about growth-inflation balance rather than catching up oninterest rate differentials.

Source: AmInvest Research - 3 Nov 2023