In November, foreign outflows from the local bond market extended for the third consecutive month, albeit at a slower pace (RM1.0 billion; October: RM6.3 billion). Consequently, cumulative foreign flows YTD fell deeper into negative territory to RM8.9 billion. It is important to note, though, that the outflow was mainly attributed to redemptions of short-term government notes.

Notwithstanding the foreign outflow, the ringgit gained 5.6% against the USD to end November at 4.475, thanks in part to upbeat 3Q2022 GDP data (14.2% y-o-y; 2Q2022: 8.9%). Anwar Ibrahim’s appointment as Malaysia’s new prime minister, which ended the country’s political impasse, at least for now, also helped.

Meanwhile, demand for the latest 30-year Government Investment Issues (GII) auction picked up (bid-to-cover ratio: 2.24x), thanks to moves by financial institutions to match their liability profile against the backdrop of a relatively small offering size.

Amid this setting, it is not surprising that local govvies mostly rallied in November and the trading volume for Malaysian Government Securities (MGS) rose by 33.3% to RM35.6 billion (October: RM26.7 billion). Yields on the short end of the curve, however, ended the month slightly higher as investors assessed the Overnight Policy Rate (OPR) outlook.

At its November Monetary Policy Committee (MPC) meeting, Bank Negara Malaysia (BNM) had raised the OPR by 25 bps for the fourth consecutive meeting to 2.75%. We concur with the decision given Malaysia’s continued growth prospects, notwithstanding the backdrop of an increasingly challenging economic environment, and therefore the potential for further build-up of demand-driven price pressures.

Moving forward, we expect BNM to remain on a rate tightening path, though how the pace of tightening pans out will depend on how much further the precarious geoeconomic backdrop worsens. As it is, the International Monetary Fund (IMF) has already warned of a looming global recession in its October 2022 World Economic Outlook report.