Malaysia Economics: MPC More Confident on Growth, Still Vigilant on Inflation

Research evidence excerpt

Malaysia Economics: MPC More Confident on Growth, Still Vigilant on Inflation

gely absent amidst some slowdown in

consumption and easing of job market tightness. As such, while easing downside

growth risks argue against a cut, we do not see inflation as a reason for BNM to

hike at this stage.

….but risks remain tilted towards a backloaded 25bps hike – Such risks would

materialize if recent export strength filters more strongly than expected to the job

market and domestic demand, generating demand pull inflation pressures.

Alternatively, to the extent that the Jul-25 OPR cut was intended to address the

increased policy uncertainties, any significant reduction in the degree of

uncertainty could be a trigger for a reversal of the earlier cut. For now, despite some

reduction in uncertainty from de-escalation of the ME conflict, policymakers likely

still see uncertainties (including from scarring effects of the conflict and

geopolitical tensions) as significant. This is even as BNM could be on the lookout

for opportunities to reverse the earlier insurance cut to pre-empt the risk of

financial imbalances or inflation from an extended period of overly low interest

rates.

Still biased for a stronger MYR despite headwinds from political uncertainty -

The MYR has thus far acted a shock absorber, bearing the brunt of adjustment to

overall monetary conditions from the earlier stagflationary shocks.

Notwithstanding recent MYR weakness possibly on political uncertainties related

to the Johor state elections, we remain biased towards stronger MYR, which is

fundamentally supported by a positive terms of trade shock (both from the lagged

impact of oil prices of LNG and higher E&E export prices. “Intensified”

engagements with GLCs and GLICs to repatriate and convert their income could