Summary

• The latest economic data for Malaysia were mixed. Wholesale trade and domestic-oriented manufacturing production for July were rather resilient, whereas trade data showed continued weakness.
• The removal of the phrase “slightly accommodative” from the monetary policy statement may imply that the current interest rate level is appropriate. Bank Negara Malaysia (BNM) is expected to maintain the policy rate at 3.00% for the rest of the year to support domestic demand.
• The ringgit notably weakened further in September, reaching 4.70 towards the end of the month against a firmer greenback. The dollar index continued its rally against major currencies, driven by signs of resilience in the US economy. Net foreign flows in the local bond market turned negative for the first time this year as foreign investors tracked the depreciating ringgit.
• Growing risk-off sentiment ahead of the US Federal Reserve (Fed) meeting had put upward pressure on local bond yields. For now, the local bond market remains anchored on expected stability in Malaysia’s policy interest rate, despite expectations of higher rates in the US and Europe.