KUALA LUMPUR (Sept 9): UOB Global Economics & Markets Research said expectations for imminent loosening of US Federal Reserve monetary policy will encourage reallocation of global flows towards emerging markets in Asia, including Malaysia, given the macro resilience of the region.

In a macro note on Monday, the research house said regional central banks may be given scope to loosen their monetary policies as broader monetary easing across the advanced economies sets in.

However, it expects Bank Negara Malaysia (BNM) to extend pause in the overnight policy rate (OPR) through 2024 and 2025, which may result in better interest rate differentials.  

This is due to the view that BNM will stay guarded against the effects of domestic subsidy policy changes, potential second-round effects of robust domestic demand and favorable labour market conditions on inflation over the coming quarters, the research house said.

“As more central banks embark on an easing cycle, a stable OPR will provide support for the ringgit (MYR). We forecast USD/MYR at 4.28 in the fourth quarter of 2024 (4Q2024), 4.24 in 1Q2025, and 4.20 in 2Q2025,” it said.

That said, UOB also noted that further gains in the ringgit are unlikely to carry on at the same pace as in August, given that investors may rotate into other regional currencies that are still lagging in the recovery against the US dollar.

Foreign portfolio inflows into Malaysia hit a 13-month high in August, as foreign investors continued to pile into Malaysia’s capital markets at a record buying pace.

For context, foreign investors' purchase of equities rose further to a 29-month high of RM2.5 billion in August, compared with RM1.3 billion in July, while purchases of debt securities reached RM9 billion versus RM7.8 billion.

The higher foreign portfolio inflows lifted the central bank's foreign reserves to US dollars to US$116.8 billion as at end-August, the highest level since December 2021.

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