KUALA LUMPUR: Malaysia's headline inflation is likely to stay between 2.0 per cent and 3.5 per cent in 2023 on the back of a strong economic recovery following the COVID-19 pandemic, according to Manulife Investment Management.
Its head of macro strategy for Asia Sue Trinh said inflation was much lower in Malaysia compared to in many parts of the world, especially the emerging markets, due to generous subsidies from the government amounting to about 3.0 per cent of the gross domestic product (GDP).
"Accordingly, we doubt that Bank Negara Malaysia is likely to be pressing a panic button really soon regarding its tightening cycle," she said at the Manulife Investment Management 2022 mid-year investment outlook virtual media briefing today.
To recap, Malaysia hiked its overnight policy rate (OPR) by 25 basis points (bps) to 2.0 per cent in May. It was after four back-to-back cuts totalling 125 bps between January and July 2020, reducing the OPR to a record low of 1.75 per cent.
Last week, the central bank decided to hike the OPR by another 25 bps to 2.25 per cent. This was also BNM’s first back-to-back OPR hike since mid-2010 when interest rates were normalised following the recovery from the 2008/09 global financial crisis.
"Like many central banks in Asia, we are expecting the tightening cycle to relatively be more muted than what we are seeing in other markets," said Trinh.
Meanwhile, Manulife Investment Management has maintained its view that the global economy could experience a significant growth slowdown in 2022.
"With global GDP falling further below trend and leverage having risen to a record, investors should be more selective by finding economies that are least vulnerable to the potential demand and supply shocks.
"We think Malaysia, Vietnam, Taiwan, Australia, and New Zealand are likely to be the biggest beneficiaries within the region from both the food and energy shock as well as potential liquidity shocks,” said Trinh.
Manulife Investment Management chief investment officer, fixed income, Asia (ex-Japan) Murray Collis highlighted that some Asian economies might offer pockets of opportunities for fixed income investors, especially after US Treasury yields retraced to higher levels from pandemic lows.
He said a greater diversity in the pace and magnitude of monetary policy tightening was expected across the region; and compared to the US Federal Reserve and other developed-market central banks, generally, a less hawkish central bank stance should support selective Asian credit markets.
"We expect idiosyncratic risks to remain to a certain degree in Asian credit markets for the second half of 2022. However, investors are more compensated with Asia credits offering relatively attractive valuations post US Treasury yield movements year-to-date.
"We believe Southeast Asia has emerged as a potential bright spot amid rising stagflationary fears from global investors, as several markets have recorded faster-than-expected GDP growth. This is due to a pick-up in tourism, re-opening of economies, and strong commodity exports," he added.
Collis said the faster growth boosted consumption in some Southeast Asian economies, with the pace of growth potentially outpacing inflation.
"Such expectation is in contrast to some developed markets that face growing stagflation and recessionary risks,” he added. - Bernama