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Malaysia’s headline inflation fell to 2% in July, according to Bank Negara Malaysia’s (BNM) Monetary and Financial Developments report.
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The domestic financial market and the ringgit exchange rate were mainly influenced by expectations that the US Federal Reserve’s monetary tightening cycle was coming to an end.
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The overnight policy rate (OPR) is unlikely to be raised at the next meeting as the Malaysian economy is growing steadily.
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If the Monetary Policy Committee leaves the rate unchanged, USDMYR could reach 4.5000–4.5500.
KUALA LUMPUR, MALAYSIA – Media OutReach – September 4, 2023 – The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) will meet on September 6 and 7 to decide on monetary policy.
According to the BNM report on
Monetary and financial developments in July 2023, headline inflation in Malaysia continued to fall, reaching 2% in July. This decline is explained by a decline in core inflation, attributed mainly to a decline in inflation for meals away from home and certain optional services.
The latest BNM report also forecasts that the Malaysian economy will grow towards the lower end of the 4-5% range in 2023, driven mainly by domestic demand.
The performance of the domestic financial market was largely influenced by expectations that the US Federal Reserve’s monetary tightening cycle was coming to an end. As a result, the ringgit appreciated by 3.1% against the US dollar in July. However, this growth was offset in August and USDMYR is currently testing a two-month high between 4.6300 and 4.7000.
“BNM cannot ignore falling inflation,” said OctaFX financial markets analyst Kar Yong Ang. “With the continued growth of the Malaysian economy and the likelihood of a pause in the US Federal Reserve’s policy rate hike, it is unlikely that the Overnight Policy Rate (OPR) will be raised in the next meeting,” he added.
Given the current level of OPR, market policy is expected to be accommodative and favorable to the economy. The move aims to support capital markets and stabilize the USDMYR exchange rate, which is expected to trend downward (and the ringgit to appreciate) with a target range of 4.5000 to 4.5500.
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