HSBC Update Post Yesterday's On Hold Decision

The bank give their update post yesterday's on hold decision. The outcome was largely as expected, albeit with increased focus on FX stability. No policy rate changes are expected this year.

• HSBC: "The tone in the statement remains the same as that in January, with a continued neutral tone on both growth and inflation. Indeed, there are little reasons to sound hawkish, as growth is still at a nascent stage of recovery, and inflation remains largely benign. Unlike peers such as Singapore and Vietnam, Malaysia has seen a delayed recovery in the trade cycle."
• "Similarly, BNM's tone on inflation also remained the same as the January one. The broad disinflation trend continues, as headline inflation cooled from 2.5% in 2023 to only 1.5% in January. That said, as we have been flagging earlier, upside risks remain for 2024, mainly from the policies introduced in the 2024 budget. Two key developments are a 2ppt services tax (to 8%) hike and subsidy rationalisation. The former has started to be effective from 1 March, but the implementation timing of the latter remains uncertain."
• "Despite no reasons to sound hawkish, there is also little reason to sound dovish, given FX concerns. The topic has garnered increased attention, after MYR fell to its weakest level against the USD since the Asian Financial Crisis, prompting Prime Minister Anwar Ibrahim to express his concerns and vow to look into it at the end of February (Nikkei, 23 February). Subsequently, officials from BNM and Ministry of Finance have stepped up their remarks on MYR, and MYR recently climbed to a one-month high. Today's statement has reiterated the official points made in the past two weeks. One, "MYR is currently undervalued", and it's primarily driven by external factors, including the US Fed rates. Two, "the government and BNM are encouraging repatriation and conversion of foreign investment income by Government-Linked Companies (GLCs) and Government-Linked Investment Companies (GLICs)".
  
  All in all, no surprises from today's BNM meeting. BNM remains comfortable with its monetary stance, a position that it has maintained since last September. We expect a pause from BNM, keeping its policy rate steady at 3.00% in 2024."