KUALA LUMPUR: Investors increasingly expect Malaysia, South-East Asia’s last holdout against interest rate cuts, to give in to mounting economic pressure from the global trade war.
Ringgit swaps are pricing 30 basis points of easing by Bank Negara over the next six months, double the expectations from just a month ago.
A recent auction of a three-year government bond – the most sensitive benchmark to rate expectations – received a bid-to-cover of 3.18 times, the highest since August for short-to-mid dated notes.
A cut could spur borrowing and investment, while signalling to investors that Bank Negara is concerned about the growth outlook amid the global tariff uncertainty.
“Ringgit rates market has increased dovish bets for Bank Negara,” said Winson Phoon, head of fixed-income research at Maybank Securities Pte.
“Amid weaker-than-expected first quarter gross domestic product and rising global trade tensions, a rate cut would drive the three-year benchmark to outperform other parts of the curve,” he added.
Maybank saw a potential 25-basis point rate cut by the end of 2025. Goldman Sachs Group Inc and CIMB Bank are also anticipating a 25-basis point easing later this year.
Malaysia’s first-quarter gross domestic product growth of 4.4% on-year fell short of estimates, the slowest pace in a year.
The inflation rate in March was the lowest in four years, with headline prices rising 1.4%.
The International Monetary Fund –which slashed its forecasts for world growth earlier this week – expects Malaysia’s economy to expand by 4.1% in 2025. — Bloomberg
