06 March 2025
SUMMARY
➤ BNM held the OPR at 2.75% amid elevated global uncertainties indicating a more cautious tone. The current stance remains supportive of growth and price stability, with event risks skewed towards geopolitical tensions in the Middle East, heightened market volatility and potential trade supply-chain disruptions.
➤ Despite heightened geopolitical risk, Malaysia’s growth outlook remained resilient in 2026, confronting from a position of strength. Strong labour conditions, ongoing public and private sector projects, solid E&E exports and tourism receipts continue to underpin economic momentum, despite external headwinds.
➤ Inflation remains within manageable expectations, providing policy flexibility. Headline and core inflation expected to remain moderate in early 2026 without notable demand-driven price pressures, with event risk remained fluid.
➤ Malaysia’s domestic bond market is expected to remain resilient, anchored by a stable OPR environment, narrowing US‑EM yield differentials and continued support from domestic institutional investors. Ringgit is likely to be pressured on short-term depreciation or weakening bias against USD on risk aversion.
➤ With OPR expected to remain unchanged through 2026, long‑duration positioning gains are stretched given relatively flat yield curve as emphasis pivots towards income (carry) returns, within targeted duration range of 4.0–5.5 years. Our strategy emphasizes on overweight allocation to high‑grade corporate bonds, while closely monitoring geopolitical with broader macroeconomic risks.
BNM ON HOLD IN MARCH AS GEOPOLITICAL RISK INTENSIFIED
- As expected, Bank Negara Malaysia (BNM) maintained Overnight Policy Rate (OPR) at 2.75% after concluding its recent Monetary Policy Committee (MPC) meeting on March 5, 2026.
- As compared to previous January MPC meeting, the latest March meeting indicates a more cautious tone highlighting recent geopolitical Middle East tensions and heightened global volatility has increased downside risk amid ongoing concerns of tariff-induced impact and frothy valuations in the financial markets.
- Despite increased in global risk sentiment and uncertainty, BNM maintained an upbeat view on Malaysia’s domestic economy outlook supported by income-related measures, implementation of multi-period projects and realization of investments under National Master plans, robust trade performances especially in E&E exports and higher tourism receipts.
- The March decision reflects confidence that current monetary policy stance remains accommodative towards economic growth while ensuring price stability. The central bank acknowledges ongoing uncertainties from the conflict in Middle East and the evolving geopolitical tensions in the region, but the country is confronting such challenges from a position of strength.
- Malaysia’s economy expanded by 5.2% in 2025, supported by strong domestic demand, higher E&E exports and robust tourism, with momentum expected to continue into 2026. Presently, the Middle East conflicts remain very fluid with potential price effects from event risk are assessed to be broadly supply driven.
- Headline and core inflation stood at 1.6% and 2.3% in January 2026, respectively, with inflation expected to remain within official projection of 2.0 – 3.5%. Despite increased volatility in global commodity prices, current developments have not materially changed the global and/or domestic growth and inflation dynamics just yet.
- The risk of balance described in the latest MPC meeting is asymmetric toward external downside risks rather than domestic overheating, and there is no indication of emerging demand-driven inflationary pressures. The language in the minutes signals a preference for policy continuity unless geopolitical developments worsen dramatically, or demand-driven inflation unexpectedly re-accelerates.
Opus View
- Domestic bond market is expected to exhibit resiliency, underpinned by narrowing yield differentials between the US and Emerging Markets policy rates as well as continuing institutional support. Short-term Ringgit’s dynamics are expected to be biased on the depreciation or weakening against US dollar, as risk sentiment drove dollar safe haven.
- Given anticipated OPR to be maintained through 2026 with limited rate cut scenario the risk-return profile associated with long duration positioning likely to be constrained with limited capital appreciation, thereby relying more on income (carry) rather than price gains. We maintain our duration range to 4.0 – 5.5 years with an overweight position in high-grade corporate bonds, trading at reasonable yield, as part of strategy to balance risk and returns. We will closely monitor the uncertainties from geopolitical developments or any broader macro shifts and will provide timely updates as event risk are still evolving.
Disclaimer
The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity. Individual investors should contact their own licensed financial professional advisor to determine the most appropriate investment options. This material contains the opinions of the manager, based on assumptions or market conditions and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information provided herein may include data or opinion that has been obtained from, or is based on, sources believed to be reliable, but is not guaranteed as to the accuracy or completeness of the information. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Opus Asset Management Sdn Bhd and its employees accept no liability whatsoever with respect to the use of this material or its contents.
