- Bank Negara Malaysia has decided to maintain the Overnight Policy Rate (OPR) at 3.25% at the Monetary Policy Committee (MPC) meeting last Friday.

- According to the monetary policy statement, the downside risks to growth have increased arising from the moderating growth momentum in the major emerging market economies, uncertainty in commodity prices, and heightened volatility in financial markets.

- For Malaysia, recent indicators suggest continued expansion in economic activity in 3Q15 despite ongoing adjustments to external and domestic developments.

- Private consumption is expected to moderate as households adjust to the Goods and Services Tax (GST) and the more uncertain economic environment.

- As for inflation, the impact of the weak Ringgit on overall inflation has been limited on the back of lower commodity prices and the generally low global inflation.

- While global and domestic developments have continued to affect the Ringgit and domestic financial market, overall domestic liquidity conditions remain stable.

- BNM also indicated that the financial system remains sound, with healthy growth in financing. Financial intermediation has therefore continued to support the economy.

- Other than that, BNM has been monitoring to ensure an orderly fluctuation of the Ringgit currency. The Ringgit exchange rate is being affected by global factors.

- On a YTD basis, reserves stumbled by 18.3% (or -USD10.4bil from end-2014) to USD94.7bil as at end-August 2015. The reserves level is able to finance 7.4 months of retained imports and is 1.0x the short-term external debt.

- However, Ringgit is expected to remain lacklustre against major currencies as currency intervention by BNM is likely to be limited going forth given the YTD outflows of funds and softer current account surplus.

- Other than that, liquidity surplus had stumbled by a cumulative 47% from an estimated high of RM390.3bil in May 2013 to RM207.0bil as at end-July 2015 (see Chart 2). On a YTD basis, the surplus fell by 29.4% (or -RM86.1bil).

Source: AmeSecurities Research - 15 Sep 2015