The flow of funds in the Malaysian financial system is expected to tighten towards the end of this year as more and more analysts expect Bank Negara Malaysia (BNM) to raise interest rates.
This expectation is driven by the country's continued strong economic performance and the risk of rising energy prices due to geopolitical tensions in the Middle East.
A key money market indicator, the three-month Kuala Lumpur Interbank Offered Rate (Klibor), has risen to its highest level in a year.
This increase shows that the cost of interbank borrowing is getting higher, thus signaling that the market is starting to expect tighter monetary policy in the future.
According to analysts, the flow of funds in the financial system has started to decrease since June due to higher loan growth compared to deposits.
At the same time, the Malaysian economy continues to show encouraging performance. Economic growth for the second quarter is expected to reach 5.3%, supported by increasing exports, strong domestic demand and benefits from the rapid development of the artificial intelligence (AI) industry.
Several international financial institutions have also changed their expectations for BNM's policy.
JPMorgan now expects BNM to raise the Overnight Policy Rate (OPR) by 0.25 percentage points in the fourth quarter of this year, compared to previous expectations that interest rates would be maintained.
However, there are also analysts who believe that the increase in financing costs will not happen suddenly because some of the expectations have already been factored in by the market.
In addition to domestic factors, external developments such as the conflict in the Middle East, the potential for rising global inflation and the strengthening of the US dollar could also put pressure on the Malaysian financial market.
If BNM does indeed raise interest rates, borrowing costs for individuals and businesses are likely to increase, but the move is also aimed at ensuring that inflation remains under control and the country's economic stability is maintained.
