KUCHING: Analysts in unison believe Bank Negara Malaysia (BNM) will continue to maintain the Overnight Policy Rate (OPR) at 3.25 per cent following no change at its recent meeting on Wednesday.
The decision is widely expected and timely as macroeconomic indicators are reflecting moderating signs.
Kenanga Investment Bank Bhd (Kenanga Research) maintained its view that BNM would hold the OPR as supporting growth and price stability would still be BNM’s focus and priority in spite of further capital outflows in August amid the emerging market rout caused by spill overs from financial turmoil in Turkey and Argentina, as well an impending US Fed rate hikes.
“Apart from assuring that its monetary operations would continue to provide sufficient liquidity BNM has recently relaxed its foreign exchange administration rules to help support businesses manage administrative and compliance cost,” it said in a report yesterday.
In the latest assessment on the overall economic conditions in the advanced and regional economies, BNM noted that risks to the global economic growth has increased with the trade tensions continuing to be a key source of downside risk.
BNM added that “global economic expansion is continuing, albeit with increasing divergence across economies and signs of a slower momentum.”
Economist Vincent Loo from RHB Research Institute Sdn Bhd (RHB Research) said BNM was likely to keep the rate unchanged for the rest of the year and into 2019 as this would help keep the stability of the ringgit against the US dollar against the backdrop of ongoing monetary tightening by the US Federal Reserve.
“Under such circumstances, the US Fed may be forced to slow down its pace of rate hikes next year, in our view,” he said in a separate note.
MIDF Amanah Investment Bank Bhd (MIDF Research) also believed the OPR will stay put at 3.25 per cent amidst balanced risk.
“We expect domestic economy will continue to expand at a moderating pace in 2018. However, future developments in both internal and external fronts will determine the upcoming outlook of Malaysia monetary policy.”
This was on the back of Malaysia’s Gross Domestic Product (GDP) growth expanding by 4.5 per cent year on year (y-o-y) in the second quarter of 2018 (2Q18) — the slowest seen in 18 months.
“It is the weakest growth in six quarters and less than previous quarter growth of 5.4 per cent,” it observed.
“Among others, domestic demand contributes about 4.3 per cent of the total growth during the quarter. From supply side, services and manufacturing sectors contribute 3.5 and 1.2 per cent respectively.
“The slowdown in GDP growth was in tandem with moderating performances of industrial production, manufacturing sales, distributive trade and external trade during the quarter.
“Moderating inflationary pressure, strengthening domestic demand and accommodative economic policies as well as strong exports growth are expected to be major drivers for GDP performance in the second half 2018.”
Source: Borneo Post Online