KUALA LUMPUR (Nov 4): Malaysia’s bond market, highly-convinced of a policy rate hike this week, will be proven wrong once again, according to BIMB Securities.
Bank Negara Malaysia (BNM) is likely to maintain the overnight policy rate on Thursday following the last scheduled meeting of the year, the research house said in a note. Any changes will only begin in the second half of 2027, contingent on stronger-than-expected domestic demand, the house said.
A decision to raise interest rates would be “a big surprise” to the stock market though banks and exporters will benefit, BIMB Securities said.
The spread between the three-month Kuala Lumpur Interbank Offered Rate and the overnight policy rate is now 81 basis points — the biggest gap since the post-pandemic monetary tightening cycle that ended in 2023. The average spread is only around 42 basis points on average.
However, the bond market has been wrong before, and it often does, according to BIMB Securities. Spreads have jumped twice in 2024-2025 to price in a policy rate hike, only for BNM to stay more accommodative than anticipated.
“We do not think BNM should or would hike rates at this juncture,” BIMB Securities said.
Part of the expectations are due to broader global rate direction, which is a weak case for tightening, the house said, noting that Malaysia’s central bank has been prioritising the domestic economy and tolerated prolonged periods of being out of step with the global rates.