PETALING JAYA: Bank Negara Malaysia (BNM) is likely to hold rates as inflation remains contained while monitoring pipeline price pressures, according to Kenanga Research.
The brokerage expects BNM to maintain the overnight policy rate (OPR) at 2.75% through 2026 as underlying inflation stays contained and growth remains resilient.
“Higher producer price index warrants close monitoring for signs of pass-through into consumer prices, but we expect any cost pressures to remain manageable.
“Unless broader second-round inflationary pressures emerge, BNM is likely to look through temporary supply-driven shocks and prioritise policy stability,” it added.
Kenanga Research maintains a strong medium-term target for the ringgit at RM3.95 to the US dollar by year-end (strengthening from 4.06 at end-2025).
“We view the recent strength in the US dollar as a hawkish detour rather than a change in destination, driven by geopolitical risks and markets pushing back Federal Reserve (Fed) easing expectations.
“Over the medium term, structural factors including reserve diversification, persistent US fiscal deficits and gradual portfolio reallocation should reassert once the Fed moves past its extended pause into actual easing,” it said.
“Near term, the pause itself likely keeps the US dollar supported on rare differential grounds.
“Malaysia’s fundamentals remain supportive – resilient growth, sustained current account surpluses and record foreign currency deposits, which provide scope for future conversion into ringgit assets,” Kenanga Research added.
Last Friday, BNM announced that its international reserves had edged down by US$0.5bil (minus 0.4% month-on-month or m-o-m) to US$132.1bil as of July 31, 2026, marking its first decline in four months.
According to Kenanga Research, this was largely driven by a US$0.4bil decline in foreign currency reserves to US$116.8bil, reflecting foreign capital outflows from the domestic bond market as offshore investors repatriated funds.
“Import cover held steady at 4.7 months, and the reserves-to-short-term external debt ratio stayed unchanged at 0.9 times total short-term external debt,” it said, adding that net foreign currency reserves declined to US$81.3bil in June (May: US$83.4bil), mainly due to a sharp increase in short positions (minus US$27.2bil).
The brokerage said holdings of other reserve assets declined by US$0.1bil (minus 5.8% m-o-m) to US$2.2bil.
“Gold, special drawing rights and the International Monetary Fund reserve position remained broadly unchanged.”
In ringgit terms, it said total reserves declined by RM1.9bil (minus 0.4% m-o-m) to RM535.1bil in July.
“The ringgit extended June’s losses, depreciating a further 0.3% in July to average 4.08 (June: 4.07). It traded largely within our projected 4.07 to 4.10 range.”
However, the Fed’s decision to keep rates unchanged helped to stabilise the ringgit by the end of July, said Kenanga Research.
