KUALA LUMPUR: Prospects of higher interest rates externally, weakened ringgit and rising inflation risks will keep Bank Negara Malaysia on a monetary tightening path, MARC Ratings Bhd said.
The rating agency viewed the current Overnight Policy Rate at 75 basis points (bps) below the pre-pandemic level was still supportive of economic growth.
"With the forward-looking indicators suggesting solid growth in the near term, we expect the ongoing consecutive rate hike to continue to 2.75 per cent by year-end so long as the rate gap is a concern," it said in a statement today.
Meanwhile, MARC said local govvies mostly rallied in July, reflecting the movements in major government bond markets.
Major government bond yields were lifted by stronger haven demand as concerns about a recession escalated after a recent stream of economic data, from the US to Europe, flashed signs of a slowing global economy.
On the local front, MARC said encouraging government bond auction results somewhat boosted the sentiment.
Consequently, Malaysian Government Securities (MGS) yields were compressed lower by 16 bps to 42 bps for the month along the 5y20y curve.
Of note, the 10-year MGS yield settled at 3.90 per cent, about 50 bps lower than the peak of 4.40 per cent recorded in mid-June.
Meanwhile, the three-year MGS yield was up one basis point to end at 3.50 per cent amid expectations of an OPR hike by Bank Negara, resulting in a flatter yield curve.
"After delivering a 25 bps hike in May, the first in more than four years, Bank Negara followed up with another 25 bps increase in the OPR to 2.25 per cent at its Monetary Policy Committee meeting on July 6, 2022.
"The OPR hike had been widely expected as Bank Negara had signalled policy normalisation amid a widened rate differential between the US and Malaysia," it said.