US FEDERAL Reserve chairman Jay Powell triggered a sudden sell-off in long-term US Treasury debt and equities after he vowed to keep monetary policy steady even as the economy improves and inflation begins to rise.
This has raised concern among investors that the central bank is reacting too slowly to the recent rise in inflation expectations and long-term Treasury yields.
In addition, The US five-year break-even rate, a market-based measure of inflation expectations, exceeded 2.5% on Wednesday for the first time since 2008, Bloomberg data show.
Despite a surge in the US inflation recent, Malaysian bonds, namely Malaysian Government Securities remained stable, says Inter-Pacific Asset Management Sdn Bhd chief executive officer Datuk Dr Nazri Khan Adam Khan.
“Now we know that the market is falling not due to economic factors but due to inflation rising faster than expected,” Nazri told Bernama.
“We can see a massive fall in bonds (in the US), but Malaysian bonds, relatively, are not affected so far.”
According to Nazri, Malaysia’s economy is expected to remain on the positive growth trajectory moving forward despite uncertainty on the global economic front, as the country still has ample liquidity buffers.
“We still have ample liquidity and Bank Negara (BNM) cut the interest rate four times last year. So, there is a possibility for the central bank to reduce it further to 1.5% (from 1.75%), that could be to stimulate the economy,” he elaborated.
Meanwhile, Nazri said that Bursa Malaysia is expected to trend higher next week, touching 1,600 points, driven by the downward trend in COVID-19 infections to below 2,000 daily cases of late, as well as the continued recovery in oil prices.
“Also, the market is expected to gain some support over speculation of a snap 15th general election lingering (in the market) that it could be held once the pandemic is contained as assured by Prime Minister Tan Sri Muhyiddin Yassin,” he pointed out.
In addition, the improving of US-China (relations) under Joe Biden’s administration is also good catalyst for Malaysia.
“As an open economy, where both countries are among our major trading partners, Malaysia should be riding on the positive development to grow the economy,” he added. – March 7, 2021
