Higher GDP growth for second quarter

While Malaysia saw higher-thanexpected GDP growth of 5.8 per cent for 2Q17 and a slight uptick in broader price trends, as measured by core inflation, the research firm believed that this would not significantly change the fundamentals of Malaysia’s OPR trajectory moving forward.

“Indeed, despite slightly higher core inflation of 2.6 per cent in July, it is noteworthy that inflation remains manageable overall and historically unimpressive, at least relative to 1Q16 which saw core inflation in excess of 3.5 per cent, “Moreover, despite signs of improved 2Q17 GDP numbers, it is worth noting that domestic demand expanded by a weaker 5.7 per cent, suggesting that a likewise more cautious approach to the OPR will be warranted.” Kenanga Research said in the short term, it believed that regional tensions – largely stemming from North Korea’s missile programme – may be a damper on investors’ sentiments.

“On the balance, with the US dollar possibly weakening against other major currency and the Ringgit’s strength slightly tempered by these tensions, we expect a greater degree of currency uncertainties in the short-to-medium term.

“This may be somewhat balanced by a more active open market operations by Bank Negara (BNM) in attempting to stem these volatilities. For now, we expect the ringgit to be biased on the downside and trade close to the USDMYR 4.25- 4.30 range, possibly testing the 4.30 levels on escalation of regional tensions.

“Other longer term sources of volatility may arise from BNM’s backlash against the introduction of ringgit futures at the Singapore Exchange, potentially leading to similar, albeit less drastic, volatilities which we observed during BNM’s recent attempt in clamping on non- deliverable forwards late-2016.”