Background Summary

OPR remains unchanged at 3.00%. As widely expected, the second Monetary Policy Committee (MPC) meeting of the year saw Bank Negara Malaysia’s (BNM) holding the benchmark Overnight Policy Rate (OPR) unchanged at 3.00%. This is the fifth straight MPC meeting in which BNM had the OPR level after hiking a cumulative 125bps in 2022-2023. The current interest rate level is on par with the pre-pandemic level. Overall, our view is that BNM has a neutral view of policy direction. In its latest statement, the MPC sees the current OPR level and monetary policy stance as remaining ‘supportive’ of the economy and is consistent with the current assessment of inflation and growth prospects.

Malaysia’s bonds have seen recent support from a stable BNM outlook while global central banks eye cuts. Malaysian Government Securities (MGS) saw mostly weaker movement this year. But in lieu of more clarity in onshore inflationary risks (such developments on a higher consumption tax review and subsidy rationalisation), and based on our view that OPR will be held steady for the rest of the year while global rate cuts are still en route, we maintain our upbeat forecasts for Malaysia’s bonds. We target the 3Y MGS to end the year at 3.30% and the 10Y MGS at 3.63%.

The case for the Ringgit: The near-term upside prospect for the currency remains bright. In tandem with the re-adjustment of an interest rate cut narrative coupled with a slight risk-averse environment due to the ongoing geopolitical crisis, the ringgit fell and reached 4.805 on 21st February 2024, a level last seen since the Asian Financial Crisis (AFC) in the 90s. We believe there is more upside for the ringgit relative to where it is currently trading and maintain our end-year forecast of 4.50 with a possible downside of 4.60 per dollar.

Source: AmInvest Research - 8 Mar 2024