KUALA LUMPUR: Malaysia’s stronger-than-expected growth for exports, manufacturing output, sales, as well as greater inflationary pressure, could give BNM more impetus to raise the overnight policy rate (OPR) this year, said RAM Ratings Services Bhd.
“We have revised our gross domestic product growth projection to 5.2% for 2017, with an inflation rate of 3.8%; this incorporates a potential 25-basis point hike towards the end of the year,” the rating agency said in a statement.
Meanwhile, on bonds, RAM said foreign investors reduced their holdings of Malaysian bonds by 0.6% in June, following two consecutive months of strong net foreign fund inflows.
Foreign holdings declined RM1.3bil after the June rate hike and there were more concrete plans to pare down the US Federal Reserve’s (Fed) balance sheet, despite inflation remaining below expectation.
As a result, the ringgit weakened against the US dollar in the second half of June, against expectations of strengthening US Treasury yields and some risk aversion.
On a global update, the more hawkish stance of major central banks such as the Fed and the European Central Bank would likely be key to investors in the second half of 2017 in terms of portfolio allocations.
“That said, some inertia in tightening monetary policy may be apparent after years of easy money
"This uncertainty over the timing of policy changes may lead to continued market volatility,” it added. - Bernama