Malaysia: Strong July trade growth, stable monetary policy - ING

Prakash Sakpal, Economist at ING, explains that consistent with continued export strength observed in much of Asia despite the ongoing global trade war, Malaysia’s exports held on to a strong performance in July.

Key Quotes

“The local currency (MYR)-denominated export growth of 9.4% year-on-year was a nice upside surprise given the consensus of a slowdown to 4.7% from 7.6% in June.”

“July import growth slowed to 10.3% YoY from 14.9% in June but was still ahead of the consensus forecast of 5.3%. This resulted in a wider trade surplus of MYR 8.3 billion from MYR 6 billion in June, taking the year-to-date surplus to MYR 69 billion, or MYR 19 billion wider on the year.”

“For a regional comparison, the 18.7% YoY USD-denominated growth in Malaysian exports in the first seven months of this year was the fastest in the region.”

“BNM signal a downside growth bias

The Bank Negara Malaysia (BNM) also concluded its two-day monetary policy meeting yesterday, leaving the policy rate unchanged at 3.25% as widely expected. However, the policy statement noted increased downside to growth due to domestic policy uncertainty as “the Government embarks on prioritisation of expenditure”, which was a marked shift from the July statement claiming greater policy certainty.”

“What all this means for the Malaysian ringgit?

The MYR’s 1% depreciation against the US dollar this week shifted this currency from an Asian outperformer to underperformer.”

“We continue to forecast no change to the BNM policy rate of 3.25% in the remainder of the end of the year.”

“We expect the MYR to reacquire its status as an Asian outperformer once the ongoing uncertainty from the US-China trade war and the US dollar strength lifts. But for now, we see the USD/MYR rate going up to 4.25 by end-2018, a lesser depreciation than our previous forecast of 4.35 (spot rate 4.15).”