In line with our expectation, Bank Negara Malaysia (BNM) left the overnight policy rate unchanged at 3.00%. More importantly, BNM cited the need to review the current accommodative policy on the back of the present growth momentum. We project the GDP at 5.7% for 2017.

The hawkish tone by BNM supports our view for a 25-50 basis point rate hike in 2018. Hence our USD/MYR outlook for 2017 is 4.31–33 for the full-year average with our end period at 4.15–18 with intraday trade at 4.10-4.12. We expect the USD/MYR to strengthen to 4.205 for 2018’s full-year average with our end period at 3.950.

The stronger MYR outlook against the USD is supported by improving sentiments with BNM external reserves improving to US$101.4bil at end-October, net foreign inflow into equities market at RM9.8bil at end-October, foreign holdings in MGS at 42.7% and a more stable foreign currency deposits at around 7%.

• In line with our expectation, Bank Negara Malaysia (BNM) left the overnight policy rate unchanged at 3.00%. More importantly, BNM cited the need to review the current accommodative policy on the back of the present growth momentum. We project the GDP at 5.7% for 2017.

• Also BNM has also raised its caution on inflation, which for 2017, is likely to be at the higher end of its forecast range. Our inflation projection for 2017 is 37%.

• The hawkish tone by BNM supports our view for a 25-50 basis point rate hike in 2018. Besides, we find BNM’s tone somewhat follows that of the Bank of Korea (BoK) and the central bank of Philippines which also debated the degree of accommodation needed.

• Although the Industrial Production grew 4.7% y/y in September compared to 6.8% y/y in August following a 5.7% y/y growth in manufacturing, 2.2% y/y for electricity and 2.1% y/y for mining, we project the GDP to continue to exhibit strong growth around 5.7% y/y for 2017.

• Hence our USD/MYR outlook for 2017 is 4.31–33 for the full-year average with our end period at 4.15–18 while intraday trade is at 4.10-4.12. We expect the USD/MYR to strengthen to 4.205 for 2018’s full- year average with our end period at 3.950.

• The stronger MYR outlook against the USD is supported by improving sentiments with BNM external reserves improving to US$101.4bil at end-October, net foreign inflow into equities market at RM9.8bil at end-October, foreign holdings in MGS at 42.7% and a more stable foreign currency deposits at around 7%.

Source: AmInvest Research - 10 Nov 2017