Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate (OPR) at 3.0 per cent for the next six to 12 months, given the persistent downward trajectory of both headline and core inflation.

However, looking ahead, the possibility of price shifts in food and commodities due to the uncertainties surrounding government policies, geopolitical risks and weather conditions could significantly impact the inflation outlook, Kenanga Research said in a note on Tuesday.

“Therefore, it is likely that the BNM will continue to adopt a data-dependent approach in its decision-making process,” it said.

While the ringgit’s recent appreciation towards the RM4.50 per US dollar threshold was short-lived (currently hovering within the range of RM4.54 – RM4.57), Kenanga Research upheld its neutral-to-bullish stance on the local note’s trajectory in the next three to six months due to the weak greenback outlook.

“The US dollar index is expected to trend lower around the 95.0 level in the fourth quarter of 2023 as we expect the United States (US) Federal Reserve (Fed) to turn more dovish amid continued disinflationary dynamics and potential weakening of labour market conditions in the US,” it said.

Despite the recent 25 basis points rate hike by the US Fed, the ringgit managed to recoup some of its losses, following Fed chair Jerome Powell’s dovish remarks during the post-Federal Open Market Committee meeting press conference.

The ringgit was also supported by the increasing market expectations of a potential policy shift amid the unexpected downside reading in the US core consumer price index for June.

Nevertheless, Kenanga Research said the local note was pressured by the widening negative yield differential between the Malaysia-US 10-year government bonds, while weaker yuan resulting from China’s lacklustre macroeconomic data further added to the strain on the ringgit.

Source: Bernama