KUALA LUMPUR: Malaysia’s three-year government bonds rose, pushing the yield to a five-week low, on speculation the central bank will refrain from increasing the benchmark interest rate again this year.

Bank Negara Malaysia kept the policy rate at 3.25% on Sept 18, citing steady growth prospects and stabilising inflation, after raising borrowing costs in July for the first time since 2011. Official figures published in September show consumer-price increases were just below a three-year high in August, while the expansion in exports and factory output slowed to the least in more than a year in July.

“The market took the policy statement a little on the dovish side,” said Vivek Rajpal, a Singapore-based rates strategist at Nomura Holdings Inc. “Bank Negara is open to a hike, but it’s still a probability and not a given.”

The yield on the 3.394% notes due in March 2017, declined two basis points (bps) or 0.02 percentage point to 3.49% in Kuala Lumpur, according to data compiled by Bloomberg. That adds to last week’ 9bps drop — the steepest since the bonds were sold in March.

The ringgit dropped 0.3% to 3.2450 per US dollar. While the currency has appreciated 1% this year, it reached a four-month low of 3.2483 on Sept 19. One-month implied volatility — a measure of expected moves in the exchange rate used to price options — fell 15bps to 6.81%.

Ten of 21 economists surveyed by Bloomberg predict that Bank Negara will keep the policy rate on hold for the rest of the year, while 11 see another 25bps increase.

“The prospects are for the Malaysian economy to remain on a steady growth path,” the central bank said in a statement, after last week’s rate review. “Inflation is expected to remain relatively stable for the remainder of the year.”

Malaysia upgraded its 2014 economic growth forecast to a range of 5.5% to 6%, from 5% to 5.5%, after gross domestic product increased an average 6.3% in the first half, according to a Business Times report on Sept 22 (Monday), that cited Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah.

Consumer prices advanced 3.3% in August, from a year earlier, exceeding the median estimate of economists for a 3.2% rise and near the three-year high of 3.5% recorded in March and February, a Sept 17 report showed. — Bloomberg


This article first appeared in The Edge Financial Daily, on Sept 23, 2014.