Liquidity tightening and risk aversion took centre stage in September

KUCHING: The Malaysian bond market experienced a second consecutive month of foreign capital outflow in September, to the tune of RM3 billion – exceeding the RM2.4 billion of the preceding month.

On the whole, external factors remained the key driver of this trend, with the US Fed lifting the Fed Funds Rate (FFR) by 25 bps to a range of 2.00 per cent to 2.25 per cent – the third hike this year.

Other than that, the protracted trade dispute between the US and China continues to accentuate global risk aversion and a flight to safety, with September recording a new slew of retaliatory tariffs by both sides.

On the domestic front, Bank Negara Malaysia held the Overnight Policy Rate steady at 3.25 per cent, as anticipated.

“The balance of growth and outflow pressures has placed the central bank between a rock and a hard place, as staying put remains the most optimal policy response,” noted RAM’s Head of Research, Kristina Fong.

“We expect this stance to be maintained in the foreseeable future as uncertainties still cloud domestic and external growth prospects amid continued global liquidity tightening and geopolitical concerns.”

Fong said both domestic and foreign investors will be watching for announcements following the tabling of the 11th Malaysia Plan review and Budget 2019 on October 18 and November 2, respectively for more concrete fiscal guidance on Malaysia’s debt and the fiscal deficit trajectory.

“Domestic macroeconomic strengths are therefore not expectedtoenticeanysignificant foreign capital inflows until more clarity emerges,” she concluded.