Malaysia: Strong July trade growth, stable monetary policy

Consistent with continued export strength observed in much of Asia despite the ongoing global trade war, Malaysia’s exports held on to a strong performance in July. The local currency (MYR)-denominated export growth of 9.4% year-on-year was a nice upside surprise given the consensus of a slowdown to 4.7% from 7.6% in June. Electronics exports (semiconductors surged 72%!) were standouts, while commodities exports contracted for the second consecutive month.

July import growth slowed to 10.3% YoY from 14.9% in June but was still ahead of the consensus forecast of 5.3%. This resulted in a wider trade surplus of MYR 8.3 billion from MYR 6 billion in June, taking the year-to-date surplus to MYR 69 billion, or MYR 19 billion wider on the year.

For a regional comparison, the 18.7% YoY USD-denominated growth in Malaysian exports in the first seven months of this year was the fastest in the region. The credit goes to the positive terms of trade from higher global oil prices, although this support has started to fade in recent months.

The Bank Negara Malaysia (BNM) also concluded its two-day monetary policy meeting today, leaving the policy rate unchanged at 3.25% as widely expected. However, the policy statement noted increased downside to growth due to domestic policy uncertainty as “the Government embarks on prioritisation of expenditure”, which was a marked shift from the July statement claiming greater policy certainty. Among other risks cited were trade tensions and weakness in the mining and manufacturing sectors. The statement showed no concern about inflation until the end of 2019.

Another contrast with the July statement was the removal of the reference to the MYR exchange rate to be “more reflective of the underlying fundamentals of the economy when the external and domestic uncertainties recede”. This possibly signals the BNM accommodating the MYR depreciation pressure in the ongoing emerging market sell-off.