• Headline inflation in Malaysia declined to 2% in July, according to the Monetary and Financial Developments by Bank Negara Malaysia (BNM).
• The domestic financial market and the ringgit exchange rate were driven primarily by expectations that the US Federal Reserve's monetary tightening cycle was nearing an end.
• The Overnight Policy Rate (OPR) is unlikely to be raised at the next meeting, as the Malaysian economy is growing steadily.
• If the Monetary Policy Committee leaves the rate unchanged, USDMYR could hit 4.5000–4.5500.

According to the BNM's report on Monetary and Financial Developments in July 2023^[2], headline inflation in Malaysia continued to decline, reaching 2% in July. This decrease was driven by lower core inflation, attributed mainly to lower inflation for food away from home and selected discretionary services.

The latest report from BNM also predicts that Malaysia's economy will grow towards the lower end of the 4% to 5% range in 2023, driven primarily by domestic demand.

The performance of the domestic financial market was largely influenced by expectations that the US Federal Reserve's monetary tightening cycle was nearing an end. As a result, the ringgit appreciated by 3.1% against the US dollar in July. However, this growth was offset in August, and currently, the USDMYR is testing a two-month high of 4.6300–4.7000.

‘BNM cannot ignore the decline in inflation’, said Kar Yong Ang, the OctaFX financial market analyst. ‘With the Malaysian economy growing steadily and the likelihood of a pause in the US Federal Reserve's key rate hike, the Overnight Policy Rate (OPR) is unlikely to be raised at the next meeting’, he added.

Considering the current level of the OPR, the market policy is expected to be accommodating and supportive of the economy. This move aims to support capital markets and stabilise the USDMYR exchange rate, which is anticipated to trend lower (and the ringgit appreciating) with a target range of 4.5000–4.5500.

Hashtag: #BNM #interestrate #MYR #USD

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References

1. ^{^} Media OutReach (www.media-outreach.com)
2. ^{^} Monetary and Financial Developments in July 2023 (www.bnm.gov.my)