KUALA LUMPUR: UOB Global Economics and Market research's interest rates strategist Victor Yong expects Bank Negara Malaysia (BNM) to maintain the overnight policy rate (OPR) at 3 per cent least another 12 months, with the next move likely to be a cut.
"The OPR has likely reached a peak at 3.00 per cent, and policy makers have indicated that they are comfortable with the prevailing monetary policy setting."
"It is also our view that BNM's next move will more likely be towards easier monetary policy, however OPR cuts will probably only materialise with a lag after reductions in the US Fed Funds rate has been delivered," Yong said in his note today.
He said going by the bid-to-covers (BTC), this year's bond auctions have performed better than 2023's averages in a couple of regards.
One in the longer maturities (15-year and longer) and two, Government Investment Issues have fared better than Malaysia Government Ssecurities.
Yong added that demand for duration is understandable, particularly after December 2023 when US Fed chair Jerome Powell agreeing to rate cuts in 2024.
He said this incentivised investors to run with the playbook of locking in relatively high yields and positioning for the improved prospects of fundamentally sound local currency bonds on an unhedged basis.
"As we work our way through 2024, the rate cut narrative has lost some of its persuasiveness and we may see subsequent auction BTCs for the longer maturities mean revert towards historical averages," Yong added.
He said the ringgit interest rate swap (MYR IRS) forwards curve is currently priced in line with his "extended hold" on OPR view.
"Over the past months, investors' expectations over the near-term rates path have turned more neutral.
This assessment mirrors those of the US rates market, as recent data pointed towards resilient economic growth and sticky inflation, which has thrown cold water on the magnitude of policy rate cuts in 2024," he added.