Malaysia's industrial production and CPI inflation will be on tap next week. It's interesting to see the final outcome for the industrial production given that export growth had surprised on the upside in the same month. Export sales expanded by 4.1% YoY, stronger than market expectation of 1.3%. However, sales were up mainly because of valuation effect.
Trade figures are all reported in local currency terms. And the ringgit has depreciated by about 28.9% YoY against the USD in August. Such drastic depreciation in the local currency has essentially provided the valuation lift to the headline trade figures. In USD terms, exports would have shrunk by 18.6% compared to the same period last year. As such, the take is that industrial production may have moderated to 2.0% YoY with risk on the downside.
In addition, CPI inflation is expected to remain above the 3% level. Second order price effects from the introduction of the GST as well as higher imported inflation due to the weak currency are at work. Despite the higher than usual inflation and the depreciative pressure on the ringgit, Bank Negara had maintained a stable monetary policy stance thus far and is expected to continue to do so by keeping the Overnight Policy Rate at 3.25% for the rest of the year.
