Malaysian Ringgit: Trading range against US Dollar remains stable amid hawkish BNM bias – Commerzbank

Support for Bank Negara Malaysia’s hawkish bias comes from robust September trade figures, while subdued CPI and core inflation leave room for flexibility on policy timing, according to Commerzbank’s Charlie Lay and Dr. Henry Hao. Malaysia’s exports and imports significantly surpassed expectations, and the trade surplus widened further. The authors anticipate that the Overnight Policy Rate will remain at 2.75% in the near term, with a rate increase possible in early 2027 and USD/MYR staying within a 4.00–4.10 range.

How is the trade surplus supporting MYR?

"The stronger-than-expected trade performance suggests upside risks to the advance Q3 GDP growth estimate of 5.3% yoy. It reinforces expectations that full-year growth could reach the upper end of the government's revised 4.8–5.3% forecast range. The economy expanded 5.6% in the first three quarters this year, implying around 2.5-4.5% growth in Q4 to hit the government’s full-year target."

"Headline inflation averaged just 1.8% in the first nine months, remaining comfortably within the government's 2026 forecast range of 1.5–2.5%. Looking ahead, inflation is projected to rise modestly to 1.8-2.8% in 2027, reflecting higher energy, food and other input costs. However, fuel subsidies, price controls and a relatively stable MYR should help contain the transmission of higher global commodity prices to consumer prices."

"In terms of implications for monetary policy, the combination of resilient economic growth and subdued inflation provides BNM with some flexibility over the timing and direction of its next policy adjustment. The strong export data supports an increasingly hawkish policy bias, but the softer inflation reading reduces the urgency for an immediate rate hike. Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) at 2.75% in September but removed its previous description of the policy stance as "appropriate", signalling greater flexibility to adjust rates."

"Governor Abdul Rasheed Ghaffour subsequently indicated that BNM has room to act should inflation pressures intensify. We expect BNM to hold rates steady at its next meeting on 5 November. A 25bp hike to 3.00% in early 2027 is possible if growth remains resilient and inflationary pressures build. For MYR, supportive factors come from the combination of strong external demand and a substantial trade surplus. USD/MYR has been relatively stable between the 4.00-4.10 range since July."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)