PETALING JAYA: Standard Chartered Bank (StanChart) finds the current inflationary pressure to be light and does not expect any rate hike for the rest of 2018.
It said the street view on Bank Negara’s policy stance is mixed, with some seeing the possibility of one more hike in the second half of the year, as inflationary pressure may increase on rising food and crude oil prices.
During an investor meeting, local authorities mentioned that the recent currency strengthening has had a limited impact on inflation and believe inflation risk in Malaysia is low.
In a local market alert report, StanChart said investors are positive on Malaysia’s growth outlook, especially due to increasing investment by China in the infrastructure sector, which is likely to continue.
“In addition, current inflationary pressure is light and the recent currency strengthening has had a limited impact on inflation based on our discussions.
“Most investors believe that event risk from the upcoming general election is small.
“However, foreign-exchange volatility in the ringgit may rise, given foreign investors’ positioning is skewed to the short end to belly,” said StanChart.
Apart from that, the bank said long-end supply of Malaysian Government Securities (MGS) is light in the near term, as there is only one 15-year MGS auction from now until May, although upcoming long-end supply of government guaranteed and government investment issue bonds are a concern.
Despite the latest 10-year MGS auction on Feb 27 being well received by both onshore and offshore investors, foreign investors are cautious that the MGS demand from long-term local investors may decrease and steepen the MGS curve.
“We believe long-end MGS will continue to be supported by local long-term investors, given the current spread between GG and MGS has compressed as the MGS curve has steepened, upcoming GG supply is large and investors will seek a higher liquidity premium to hold more GG, and government-linked investment companies have not increased their overseas investment significantly as approval from Bank Negara is on a case-by-case basis.
“We have recommended that investors extend the duration on favourable onshore demand-supply dynamics,” said StanChart.