Investors expect Malaysia to cut interest rates

Free Malaysia Today

24-04-2025

Ringgit swaps are pricing 30 basis points of easing by Bank Negara Malaysia over the next six months, double the expectations from just a month ago.
KUALA LUMPUR : Investors increasingly expect Malaysia, Southeast Asia's last holdout against interest rate cuts, to give in to mounting economic pressure from the global trade war.
Ringgit swaps are pricing 30 basis points of easing by Bank Negara Malaysia (BNM) over the next six months, double the expectations from just a month ago. A recent auction of a three-year government bond – the most sensitive benchmark to rate expectations – received a bid-to-cover of 3.18 times, the highest since August for short-to-mid dated notes.
A cut could spur borrowing and investment, while signalling to investors that BNM is concerned about the growth outlook amid the global tariff uncertainty.
'Ringgit rates market has increased dovish bets for BNM,' said Winson Phoon, head of fixed-income research at Maybank Securities Pte Ltd.
Amid weaker-than-expected first quarter gross domestic product and rising global trade tensions, a rate cut would drive the three-year benchmark to outperform other parts of the curve, he added.
Maybank sees a potential 25-basis point rate cut by the end of 2025. Goldman Sachs Group Inc and CIMB Bank are also anticipating a 25-basis point easing later this year.
Malaysia's first-quarter GDP growth of 4.4% year-on-year fell short of estimates, the slowest pace in a year. The inflation rate in March was the lowest in four years, with headline prices rising 1.4%.
The International Monetary Fund – which slashed its forecasts for world growth earlier this week – expects Malaysia's economy to expand by 4.1% in 2025. That's lower than the government's projection of 4.5%-5.5% growth that is currently under review.
Rising bets on rate cuts could bolster global inflows. Malaysia has seen just US$690 million of overseas investment into conventional government bonds in the first quarter, according to central bank data. In contrast, foreigners have poured about US$2.1 billion into baht bonds this month, partially on dovish wagers on the Bank of Thailand.
Regionally, Indonesia, Thailand, the Philippines and Singapore have all eased monetary policy since the second half of last year. While Bank Indonesia kept rates unchanged this week, it hinted that there was still room to resume easing.
The BNM governor said earlier this month that officials have other policy tools to mitigate the impact of US tariffs. But investors remained unconvinced amid signs of decelerating domestic growth and inflation, as well as more US levies.
Despite US president Donald Trump's 90-day pause on tariffs for further negotiations, his tariff policy looms large over the economy. The US imposed solar tariffs on several countries this week, including a 34.4% levy on Malaysian manufacturers.
The US was the second-largest destination for Malaysian exporters in 2024 after China, underscoring the stakes involved. Trade minister Tengku Zafrul Aziz will meet US trade representative Jamieson Greer in Washington today as the country seeks relief from US tariffs.
Malaysia, alongside China, Vietnam, Hungary and Mexico, 'screen as most exposed to tariff turmoil' within emerging markets, Goldman Sachs strategists including Andrew Tilton and Kamakshya Trivedi wrote in a recent note.