Summary

• Malaysia’s economy registered decelerating growth of 2.9% in 2Q2023 (1Q2023: 5.6%), presaged by weaker external sector data. Nonetheless, the growth trajectory remains consistent with the official target of 4%-5%.
• The return of equity flows in July amid persistent inflows to the bond market led to a temporary appreciation of the Malaysian ringgit (MYR); the majority of these gains reversed in August, suggesting ongoing volatility in foreign flows due to the negative yield spread between US Treasuries (UST) and Malaysian Government Securities (MGS) and a hawkish global interest rate policy.
• Malaysia’s government and corporate bond yields were hardly changed over the month of August. For now, the market has remained anchored on expected stability in Malaysia’s policy interest rate, despite expectations of higher interest rates in the US and Europe.
• US non-farm payrolls data eased, which provides a cue for the Federal Reserve to soften its interest rate rhetoric in the 19-20 September monetary policy meeting. The European Central Bank (ECB) may raise the interest rate by 25 bps on September 14.