KUCHING: Bank Negara Malaysia (BNM) will likely retain interest rates despite the continued outflow of hot money and the threat of a further depreciation of the ringgit, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) observed.
Kenanga Research explained that this was mainly because it believed BNM’s perennial concern would still be to maintain growth and price stability as it emphasised in its latest Monetary Policy Committee statement.
“This was the basis for its decision to maintain its overnight policy rate at 3.25 per cent,” the research arm said.
“On improving sentiment and economic fundamentals we maintain our US dollar-ringgit forecast of RM4.05 for this year.”
According to Kenanga Research, the ringgit has so far remained relatively unscathed amid emerging market (EM) currency rout triggered by the Turkish lira crisis.
“Year to date, the ringgit has fallen by just 2.2 per cent against US dollar while other EM currencies mainly the Turkish lira, Argentinian peso and Indonesian rupiah fell sharply by 43.4 per cent, 50.7 per cent and 9.4 per cent respectively.”
Meanwhile, Kenanga Research expected the foreign equity outflow to continue for the rest of the year but to be slower than the first half of 2018 (1H18).
This was because the research arm expected investor sentiment to improve on the expectation that policy direction would be clearer, and the new government under the Pakatan Harapan would table its first 2019 Federal Budget on November 2.
“Additionally, we expect the bond market to improve in the 2H18 as the dust settles and the business of running the new government gradually stabilise after the unprecedented 14th General Election (GE14) result.”