Malaysia Ringgit: BNM hawkish tilt limits downside – Commerzbank

Commerzbank notes USD/MYR has risen to 4.07, marking a fourth consecutive session of Ringgit weakness, weighed by foreign portfolio outflows from Malaysian equities. However, they stress that resilient manufacturing, firm domestic demand and Bank Negara Malaysia’s slightly more hawkish tone should cap further MYR losses, as policymakers look through mining-led industrial softness and focus on persistent inflation pressures.

Ringgit pressured by outflows, policy support

"July industrial production surprised to the downside, rising 4.7% yoy (Bloomberg consensus: 5.6%) vs 6.5% in June, marking the weakest growth since March."

"The slowdown was concentrated in mining, while manufacturing and electricity production remained resilient. As such, the underlying industrial growth momentum remains relatively firm, supported by robust AI-related demand for electronic products and firmer domestic demand."

"On monetary policy, Bank Negara Malaysia (BNM) is likely to look through the weaker headline industrial production data, as the downside surprise was concentrated in mining and reflects structural declines in mature oil fields rather than a broad-based slowdown."

"In FX, USD/MYR rose 0.2% to 4.07 yesterday, gaining for the fourth consecutive session. Foreign portfolio outflows have weighed on the MYR, with foreign investors net selling USD120mn of equities since the start of September. Nonetheless, BNM’s slightly more hawkish tone and a resilient growth outlook should help limit further MYR weakness in the near-term."

"Overall resilience in manufacturing and domestic demand should keep the growth outlook relatively firm, while persistent inflationary pressures should reinforce BNM’s hawkish tilt."