The ringgit is down more than 7% against the dollar in the past year, even after recovering in 2017. Exports from Indonesia to Vietnam are surging but Malaysia’s shipments are growing the fastest, accelerating to a seven-year high of 33% in May.
After a couple of years of slowing growth, declining investor sentiment and a corruption scandal involving a state-owned investment fund, Malaysia’s fortunes are turning.
The World Bank raised the nation’s growth forecast in June by the most in East Asia, inflation is easing and foreign investors are more bullish on the stock market. That’s taking the pressure off central bank, Bank Negara Malaysia (BNM), to add more stimulus to the economy after last year’s interest-rate cut.
“The ringgit went through a difficult period but it is now helping exporters,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore.
“That is boosting the economy and with domestic consumption improving, the central bank is very, very likely to keep rates unchanged in the next six to 12 months.”
Rate decision
BNM will probably hold its benchmark interest rate at 3% on Thursday, according to all 21 economists surveyed by Bloomberg.
“Bank Negara is in a sweet spot now. We had a strong run in the first quarter in terms of gross domestic product growth and inflation is gradually moderating.
“This provides room for policymakers to maintain the policy,” said Irvin Seah, a senior economist at DBS Group Holdings Ltd in Singapore.
The World Bank predicts Malaysia’s economy will expand at least 4.9% annually from 2017 to 2019, from 4.2% last year. Malaysia’s exports are equivalent to about 70% of gross domestic product in 2016 at constant prices, according to government data.
While risks remain – including a general election and doubts about the strength of the trade recovery – foreign investors are piling in. Non-residents purchased about US$2.4 billion of Malaysian stocks so far this year, the most in Southeast Asia, excluding Singapore.
An improving growth outlook means the odds are rising that the central bank will start signaling a more hawkish stance, said Euben Paracuelles, an economist at Nomura Holdings Inc in Singapore.
“The two most important things for Bank Negara are the growth outlook and financial stability risk,” he said, adding: “Given the strength of growth, led by exports and palm oil, the probability of a hike next year is higher than a cut.”