Malaysia Ringgit: BNM hawkish tilt limits downside – Commerzbank
Commerzbank notes USD/MYR has risen to 4.07, marking a fourth consecutive session of Ringgit weakness, weighed by foreign portfolio outflows from Malaysian equities.
Commerzbank reports that the USD/MYR exchange rate has climbed to 4.07, marking the fourth straight day of Ringgit decline, driven by foreign portfolio withdrawals from Malaysian equities. Despite this, the bank emphasizes that a resilient manufacturing sector, strong domestic demand, and Bank Negara Malaysia’s (BNM) slightly more hawkish stance should help prevent further MYR depreciation.
Policymakers are ignoring mining-related industrial slowdowns to focus on persistent inflation pressures. July industrial production fell 4.7% year-over-year, below the Bloomberg consensus of 5.6% and a significant drop from June's 6.5%, with the decline mainly in mining. Manufacturing and electricity production, however, remained robust.
The overall industrial growth momentum appears solid, bolstered by high demand for electronic products and robust domestic demand. Bank Negara Malaysia is expected to overlook the weaker industrial production data, seeing it as a mining-sector specific issue rather than a broader slowdown. The USD/MYR rose 0.2% to 4.07, continuing a four-day trend.
Foreign portfolio outflows have contributed to MYR weakness, with net selling of USD120mn in Malaysian equities since the beginning of September. Nonetheless, BNM's more hawkish tone and a positive growth outlook should help curb further MYR weakness in the near term. The report concludes that the overall manufacturing and domestic demand resilience should keep the growth outlook steady, while persistent inflationary pressures will reinforce BNM's hawkish stance.
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